When applying for a loan, your CIBIL score is one of the first things, creditors and banks look at. As one of the biggest risks a creditor runs while providing a loan is whether they will get the money back, getting a check around the creditworthiness is one of the most important factors while providing a loan. CIBIL score is a testament to the repayment ability an individual or a company holds. A high CIBIL score ensures easy access to credit at lower interest rates. But what if you have a low CIBIL score or no credit score? Is it still possible to secure a loan in the absence of a CIBIL score? We will explore answers to all these questions in this blog.
How can I get a loan if I don’t have a credit score?
There are several ways one can secure loans with a low credit score or no credit score:
- Reach out to NBFCs or HFCs:
- Use your salary slip as a proof:
- Collateral based loans:
- Get a Guarantor:
Non-Banking financial companies (NBFCs) and Housing finance companies (HFCs) are considered to be the best source of securing credit in cases where an individual has a low CIBIL score. Usually interest rates offered by these institutions are higher than banks but they are open to giving out loans even with a low credit score.
If you have a stable salary and income coming in, it can act as a security for banks. Even with a low CIBIL score/ No CIBIL score, one can obtain a loan amount provided they have a stable pay coming in.
Personal loans are usually collateral free but only for people with a high CIBIL score. If you have a low credit score then a security is required by banks. In such a scenario, one can pledge any asset at their end as a collateral for the loan amount.
If you get a guarantor for your loan amount, it significantly increases your chances of getting your loan approved. If the guarantor has a stable income, it will act as a security for the loan.
If you have a low CIBIL score, work towards improving the same so that the process of obtaining credit becomes easier with time.
How can I improve the credit score?
Here is how one can improve their credit score in India:
- Low credit utilization ratio:
- Build strong credit history:
- Avoid applying for new credit:
- Pay your dues on time:
If you spend more than 30% of your credit limit, it will negatively impact your credit score. Hence keep your credit utilization ratio in check.
The longer your credit history, the higher the score, provided you paid all your dues in time. It is also advisable to not close down old credit card accounts so as to elongate your credit history.
Do not apply for multiple credit card accounts and loans in a short span of time. Apply for new credit only if you really need it.
Missing a deadline on a payment will negatively impact your credit score, hence it is advisable to set payment reminders so as to avoid late payment charges and drop in CIBIL score.
Should I apply for a lower loan amount?
If you have a low CIBIL score or no existing CIBIL score indicates low creditworthiness and hence you are a high risk candidate for lenders. If the applied loan amount is lower then the lender might feel confident in providing the amount. Also, a lower loan amount will be easier to pay off hence might help improve your CIBIL score.
Can I get a loan if I am a CIBIL defaulter?
When we default on our loan amounts, it significantly impacts our CIBIL score. When we stop making payments for our loan, CIBIL puts us on the defaulter list. This means that getting loans from banks and NBFCs is extremely difficult. Options from where one can secure a loan amount really shrink. Here are some of the options one can explore in such a situation:
- Loan against collateral:
- Guarantor for the loan:
- Approach an online lender:
- Present salary slip:
Financial institutions might be willing to provide you a loan against an asset of fixed deposit.
If you have a guarantor for the loan amount, it mitigates the risk associated with lending you money and hence financial institutions might be willing to offer you credit.
If conventional financial institutions reject your loan application, one can always approach an online lender. Oftentimes, online lending platforms are a lot more lenient when dealing with applicants with sketchy credit scores when compared to financial institutions. They might also provide you a collateral free loan.
Providing a proof of stable income might help get credit from financial institutions.
If you are in the CIBIL defaulter list then be mindful of taking on another loan to your name. Preferably, pay all your dues on your existing loan first and then move on to taking additional credit.
How can I get a personal loan with a bad CIBIL score?
Getting a personal loan might be challenging with a bad CIBIL score but one can still secure one using the following ways:
- Evidence of income:
- Low loan amount:
- Get a Guarantor:
- Check for errors in credit report:
- Explain the period of no credit history:
If you have a good stable salary to your name, it makes your loan application more favourable for the lender to consider. Though you might be subjected to higher interest rates, securing a personal loan is possible.
As discussed earlier, the lower the loan amount, the lower the risk lender has to bear of you defaulting on the loan amount. The repayment of the loan amount will also be easier for you if the loan amount is smaller.
Having a guarantor with a good credit score can help you secure a personal loan faster. Just ensure that the KYC formalities are all completed with necessary documents.
Periodically, check your credit report for misreporting or general errors. Ensure that your credit report is always updated with the latest information.
If you have not undertaken any credit activity for 36 months or more, your credit report might be marked as NA or NH, which could significantly lower your CIBIL score. Explaining the reason behind the inactivity to your lender might help you secure a personal loan albeit with a higher interest rate.
How to get a personal loan for CIBIL score of 550 or less?
A CIBIL score of 550 or less is insufficient to take a personal loan from a conventional financial institution. This score indicates that you have not been responsible while handling your credit. Most financial institutions need a CIBIL score of 750 or more for a personal loan.
Nevertheless, one can secure a personal loan with a CIBIL score of 550 or less by showcasing proof of a good income, salary hike, responsible spending habits and few liabilities.
One can also approach microfinance companies who might be able to provide personal loans with a credit score of 550.