If you hold a credit score equaling 450, it is very likely that financial institutions and banks will turn down your application for a loan. If your application for a loan or any credit option is approved, you are most likely to get smaller loan proceeds and a higher rate of interest. Here in this blog, discussed are whether it is recommended to apply for a credit option with a low score, what are the drawbacks of holding a low score and what are the ways to ameliorate your score.
Note that before anything, you must understand the importance of the CIBIL score check. CIBIL score check allows you to understand where you stand financially and credit-wise and where you must improve your behaviour with credit to improve your score and thus boost your eligibility for future credit options. To check free credit score from other credit bureaus like Experian, CRIF Highmark, and Equifax, ensure to visit the respective bureaus’ sites to fetch the report. Alternatively, you can also consider fetching the report by visiting online lending marketplaces. Such online lending marketplaces tend to offer free monthly reports with useful recommendations on what credit areas you must improve to maintain or enhance your credit score.
Can you get a loan with a low credit score?
Yes, it is possible for you to avail a loan with a low score, but it might be a little difficult to get approval on the applied loan application. Financial institutions and lenders often consider lending to you if you have a higher score as you are looked upon as being highly credible and financially stable. In case you hold a low score and can avail a loan, you might be charged a higher rate of interest to make up for the enhanced lender’s risk.
Ensure in mind that being turned down on a loan offer can even affect your score negatively, making it tougher for you to obtain the credit in upcoming times. However, if you require a loan and hold a low score, you might be able to figure out the lenders who are willing to lend to you with a low score. Just ensure to be aware that such loans might come with a higher rate of interest and minimal credit opportunities.
Tip: Check Free CIBIL Score before applying for a loan
What are the drawbacks of applying for a loan with a low score?
Placing an application for a personal loan with a low credit score of 450 is a big drawback in itself. Having a low score invites a lot of drawbacks, which you must be aware of. Read on to know.
. Higher rate of interest
Lenders might levy a higher interest rate on you because you have a lower score, which equates to a higher credit risk.
. Restricted loan options
A low score might restrict available loans or the subprime loan requirements with higher interest and fees.
. Tough to qualify for any loan option
A low score might make it difficult for you to qualify for a loan and lenders might require a security or a co-signer.
. Negative effect on your score
Applying for a loan with low credit might reduce your credit score further owing to multiple credit enquiries.
. Minimal loan proceeds
You as an applicant with a low score might receive lower loan proceeds than required owing to the credit risk you carry. For instance, if you applied for a loan of Rs 2 lakh, then you may be eligible for loan approval of Rs 50,000 to 70,000 and not higher than that owing to your low score, which puts the lenders in a risky spot, and they may not agree on lending you more.
What are the crucial parameters that impact your score?
Your credit score might be impacted negatively owing to the listed parameters –
Irresponsible repayment behaviour
Missed, partially settled, or delayed payments can have a negative impact on your credit score and profile.
Poor credit utilisation ratio (CUR)
Mismanaging the credit ratio i.e., using over 30 per cent of the available credit card limit may negatively hamper your credit score.
Hard inquiries
Constant hard inquiries may lower your credit score massively.
Unhealthy mix of credit
Holding a mix of distinct kinds of credit can impact your score.
Outstanding balances
High balances on your credit accounts may reduce your score adversely.
Credit score problems
Other parameters that can cause a low score include default and a history of bankruptcy.
How can you ameliorate your score?
There are various ways to ameliorate your score, just as there are various parameters that can impact your score. The listed are specific practices that you as a borrower must ensure to follow to ameliorate your credit score –
- Pay your credit card dues in full and on time.
- Avoid holding any outstanding balances on your credit card.
- Try and repay your entire debt on the credit card in full instead of just making payment partially.
- Restrict the number of hard enquiries on your report.
- Strike a good balance between your unsecured and secured loan options.
- Use credit in a wise manner and keep your credit utilisation ratio low.
- Dispute any problems, mistakes, or errors on your report. Doing so will make the concerned party make apt measures, which would instantly enhance your score.
- Ensure to go through your credit report periodically, at least thrice a year.
How can you apply for a loan even with a low score?
There are specific practical tips or measures, which permit you to get a loan even with a lower credit score. There should be a few parameters in your credit profile which are of paramount importance and stronger despite a low score. You need to capitalise on those. Listed here few smart and legitimate ways –
High earning potential
If you hold a good earning right now and your potential to earn in future is higher, this shows you hold the adequate capacity to repay the loan on time. This may be instrumental in getting a loan application approval despite a low score.
Add a co-applicant
In case your spouse or any member of your family has a strong score, then you can add them to your loan deal to enhance your chances of availing a loan approval.
