There are times in our lives when we require a personal loan. Before we can secure one, we need to check whether we have a good credit score, have been paying our bills on time, and practice healthy financial habits. A credit score is a three-digit number, between 300–900, and reflects a consumer’s creditworthiness. A higher score – one above 700 – is always better, because it tells lenders that you are a reliable borrower.
Now, while a low credit score is not quite the end of the world, it can be a boulder on one’s route to financial independence. Any lender would want to know whether the borrower will be in a position to repay the loan amount, whether the borrower has a reliable credit score or whether the borrower can succeed in building their credit score.
How to Get a Personal Loan with Low Credit Score?
Secure a guarantor or jointly apply for a loan
Your personal low credit score can prevent you from securing a loan, but one viable solution could be to apply for a joint loan. If you can get a guarantor who has a good credit score, or apply for a loan with such a person, there are chances that your application will go through. Lenders will see the repayment ability of the guarantor or borrower with a reliable credit score and extend the same trust to you.
Work towards building a good credit score
Adopt healthy financial habits, such as spending only when necessary, saving more and investing in Public Provident Fund, National Savings Certificate, bonds and equities. With cautious spending, proper savings, and timely repayment of any debt in your name, you will be able to build a healthy credit score.
Apply for a smaller loan
Begin with going for a loan of a smaller amount, even if your requirement is of a larger amount. The reason being, if you’re able to repay the smaller amount, your EMIs are being made on a timely basis, it will have a positive impact on your credit score. Eventually, the lender will see you as a borrower with repayment ability and perhaps you can secure higher loan amounts. Do regularly check your credit score, and keep an eye on your expenses. Even the slightest drop in your credit score should prompt you to take immediate corrective measures.
Choose NBFCs or fintech companies to secure a loan
There’s no denying that NBFCs and fintech companies have revolutionized banking and financial services. They serve the segment that is traditionally unserved and underserved, the segment that a brick and mortar institution will not usually service. You have a higher chance of getting instant loan from NBFCs or Fintech companies with low credit score as compared to getting a personal loan from a traditional bank. Some of these institutions even help you build a good credit score. Thus, do your due diligence, and opt for a RBI-regulated NFBCs or fintech partner to secure your personal loan, and ensure your financial inclusion and independence.
Ensure a stable source of income
Even if this is passive, such as that from rental property, do try to see that you have a reliable source of income, so that lenders can see your application in a favourable light. Ensure that all your papers are in order, that you have some disposable income each month, try to save more than what you earn, and most importantly, try not to have a running debt.
Healthy financial habits go a long way in making one go from a mere borrower to a reliable borrower; it helps lenders know you’re someone they too can bank upon; it sets you on the right path to financial freedom.