The CIBIL score is one of the key attributes when applying for a loan. The banks refer to your credit history when deciding your eligibility for loans against any home, car, or personal purpose. But what if a loan application gets rejected because of a low CIBIL score? Do not lose heart, for there are remedies available that will enhance your chances of getting the approval and the money you need.
Understanding the CIBIL Score Range
Your CIBIL score is between 300 and 900. Here is how they break down:
- 750 and above: Excellent – You get low-interest loans quickly.
- 650 to 749: Fair – Approval may be given, but comes at a higher interest.
- 600 and below: Poor – Banks tend to reject this category.
Your CIBIL score being lower than 500 finds it hard for you to get the loan, but not impossible. The main thing is to rebuild your creditworthiness.
Why Does Your CIBIL Score Decline?
Several actions could harm your credit score:
- Late repayments on loans or credit cards.
- High credit utilization (use of more than 30 percent of your limit).
- Default on any EMI or missed payments.
- An absence of credit history (if you have never taken a loan or applied for a credit card).
- Being a guarantor for someone who has defaulted.
- Banks check your financial discipline through your CIBIL score. A lower score equals more risks, hence lenders hesitate.
How To Approach Getting A Loan With A Bad CIBIL Score
The Step-by-Step Method Towards Improvement of CIBIL Score
- Settle pending dues – Pay your overdue loans and credit card bills. Clear loan dues.
- Credit utilization ratio should be low – Maintain card usage below 30 percent.
- Do not apply for loans concurrently with the intention that one of them will go through. Too many hard inquiries will weigh your score down.
- Begin building a credit history – If you are new to credit, start with an easy-to-obtain secured credit card or a small loan against a fixed deposit.
Consider Alternatives to Conventional Loans
- Secure loans: Offer collateral like gold or property to minimize lenders’ risk.
- Loan against fixed deposits (FD): Banks provide loans against FDs, giving customers a lower interest rate.
- Non-banking Financial Companies (NBFCs): Some of them lend money to borrowers with low CIBIL scores, but at a higher rate of interest.
Use a Co-Applicant or Guarantor
If the score is poor, the chances of approval would increase if the application is given with a co-borrower with a good score.
Apply for a Smaller Loan Amount
For a smaller loan, if the stable income and repayment capacity are shown by the applicant, the Bank might consider the application favorably.
Get Professional Credit Counseling
Ready and reputable credit repair agencies can assist you with fixing errors on your credit report, which would help raise your score.