A good credit score is vital to get your loans or credit cards sanctioned from lenders. But not many people know of this and often apply for a loan or credit card without checking their credit scores. When lenders deny their loan application due to low credit score they fret as they don’t know what to do about it especially when they need money urgently. If you too have been denied loan from lenders and are looking for solutions, read further.
Before we get to the point, let me ask you a simple question – what did you learn when your loan application got rejected due to poor credit score? If you know answer to this then good for you else the answer is that before applying for a loan (be it personal loan, car loan, home loan or other) always check your credit score to know the probability of your application being sanctioned by a lender. Develop a habit of checking your credit report regularly as this has various benefits and some of them are:
- You can assess the probability of getting a loan application approved
- Allows you to improve your credit score in time
- Helps detecting and correcting credit report errors in time
- Helps in identifying identity theft
- Helps avoiding unnecessary hard enquiry
- Helps you know of the rate of interests and offers available for your credit score
Usually a credit score or CIBIL score ranges from 300 to 900. The upper limit shows that you have handled your credit well in the past whereas the lower limit shows that you cannot be trusted with credit. Most lenders approve loan applications of people with their credit scores higher than 750. However, it must also be noted that credit score is not the only factor that creditors look at loan approval or deciding interest rates. They also consider other parameters such as the type of product (secured or unsecured), loan tenure and loan amount to decide whether to approve a loan or not.
To stay abreast with your latest credit score either request your credit report from one of the four credit bureaus, i.e., TransUnion CIBIL, Equifax, Experian or CRIF Highmark or register with Paisabazaar.com and instantly view your credit report and get monthly updates free of cost.
Good, Fair and Bad of a Credit Score
Although credit bureaus have not specified a range or number as good or bad but the credit score gradation is usually as follows:
- Above 800 – Excellent
- Between 750 and 800 – Good
- Between 700 and 750 – Fair
- Between 650 and 700 – Poor
As per the gradation given above, if your credit score is poor and have been denied for loan then you can choose to follow either of the two things.
Improve Credit Score
If you don’t have to apply for a loan urgently, then you can try to improve it by following the tips given below:
- Pay credit payments on time
- Resolve past credit defaults
- Increase credit card limit to house expenses
- Pay full credit to lenders
- Don’t close old credit accounts
- Avoid being a co-borrower or guarantor for anyone
- Avoid unnecessary loan enquiries
- Develop a healthy mix of credit
- Stay below 30 percent of allowed credit limit
- Get errors from credit report corrected
Try One of these Alternatives
If you have a financial emergency and need loan as soon as possible, then you can consider trying for one of the following options:
- Apply with NBFCs
Non-Banking Financial Institutions (NBFCs) are financial entities that do not hold banking license but provide a few financial products such as loans and credit cards. In comparison with banks, NBFCs are more flexible with credit scores. However, they also charge a higher rate than banks.
- Borrow with your spouse
If you’re married and your spouse is earning and happens to have a good credit score, then you can ask him/her to apply for the loan with you. Doing this will increase your chances of getting loan sanction from lenders. However, late, missed or incomplete repayments will affect both yours and your spouse’s credit score.
- Peer to Peer Lending
If you have a low credit score, getting loan from Peer-to-peer (P2P) lenders can also be an option. These entities offer loans of small amount and may not require collateral or security from borrowers, however, the loan will be offered at a high rate of interest.