How to Get a Personal Loan Despite a Bad Credit Score

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Want to apply for a personal loan but have a poor credit score? While financial institutions do require a good credit score for disbursing personal loans, you should not lose hope. The personal loan eligibility criteria do not just include the CIBIL score but other aspects like your monthly income, employment details and so on. As per data garnered from CIBIL itself, 80% of loans that are approved have a credit score above 750. Someone with a low credit score may be able to get a personal loan but the personal loan rate of Interest will be much higher in his/her case as compared to someone with a good credit score.

The source of income and employer also makes a big difference. In case you work for a hugely reputed A-chip employer, you may still be able to apply for personal loan albeit a higher rate of interest. However, even if you do get the loan in this case, the interest rate will always be higher than what you would have paid in case of a good CIBIL score. In some cases, lenders often bring down the LTV or loan to value ratio in order to minimize their risks. Someone with a high credit score can probably obtain a higher personal loan, someone with a lower credit score may get a lower amount.

The chances of getting a personal loan are always lower in case your credit score is lower on account of payment defaults. However, in case the credit score is low because of lower exposure to credit, i.e. lower loan amounts taken till now or because your credit history is relatively new, you stand a chance to get approval provided you can provide all necessary documents for personal loan and meet the eligibility criteria otherwise. NBFCs are a little more flexible in terms of credit scores when it comes to approving personal loans which are unsecured loans.

You can also consider using any asset such as property (in your name), fixed deposits or even gold to secure a loan if you urgently need the money. You can also consider the following ways to improve your credit score:

  • Clear outstanding credit card dues- Always clear your outstanding dues on credit cards. Plan your spending in a manner where you can clear the credit balance prior to the due date. This will boost your CIBIL score. Have only 1-2 credit cards and track your spending behavior.
  • Credit Report Errors- Make sure that if there are any errors in your credit report, these are fixed at the earliest. Fixing these will help in increasing your credit score.
  • Make payments on time- Always pay utility bills and make other payments in a timely manner in order to improve your CIBIL score.
  • EMI payments- Pay your EMIs before the due date in order to boost your credit score.
  • Avoid fully utilizing your credit limit- Limit your monthly credit card bill to a maximum of 50% of the limit. In case you have a credit limit of Rs.1 lakh a month, make sure that you do not exceed Rs.50,000.
  • Avoid multiple loan/credit card applications- Applying with multiple lenders for a loan in a very short span of time does not reflect well on your credit score. It shows that you are hungry for credit and can lead to a drop in the score. Avoid making several new applications for credit cards/loans within a short span of time.