Sumit wanted to take a break from normal life, so he planned a holiday in London. He made a list of famous places in London like Big Ben, Tower of London, Tower Bridge, and a budget for this. He knew that to meet the holiday expenses he would need a personal loan. So, he applied for a personal loan online and a day after, his application got rejected. Now, he’s wondering, why the bank had rejected his personal loan application. Well, he needn't think much because he never made credit payments on time. As a result, his CIBIL score hit an unwanted low and his personal loan application got dropped.

See, this can happen with anybody, and like Sumit, their dreams could get a jolt too. But to make sure, it won’t happen with you, do proper research, and then submit your personal loan application. To know what that unwanted mark is that you certainly don't want to have and ways to improve it, read this article.

What is a low credit score?

When someone continuously does not pay his credit bills on time and he applies for a personal loan, he’s said an applicant with a low CIBIL score. Companies and organizations can also have a low credit score. By looking at someone’s credit history, lending institutions decide if it’s riskier or not to give someone a personal loan. They assess whether a person is capacious enough to repay the loan timely or not.

Example

Suppose you apply for IIFL Bank personal loan, and your credit history shows that you had failed to pay your credit bills timely then there are chances that you can be denied for a personal loan this time.

Why CIBIL score is important to get a personal loan?

Personal loans are unsecured loans in simple words to get a personal loan you don’t need to give anything as a security to the lender. When you apply personal loan with any lender, they will check your credit score first and if they find that your credit score is low, they can reject your personal loan application. Now for the lender, there is no worry if your personal loan application gets rejected but there are number of problems can arise for you because now you can’t fund your urgent cash requirements like debt consolidation, medical emergency, etc.

However, there are other ways also available, but with each way, it involves a drawback. The drawbacks are:

Disadvantages of low credit score

No approval for any kind of loan: Apart from personal loans you can be denied for any kind of loan also in other words it will be difficult to get a car loan, a home loan, a business loan or even a credit card.

Excessive rate of interest: For instance, if your loan gets approved then there may be a case of paying higher interest rates or they will penalize you with strict terms and conditions. In simple words, you will get a loan but on the lender’s terms.

No collateral-free loans anymore: You will have to find ways to get a personal loan which involves collateral like gold loan, property mortgage, etc.

Guarantor needed: In case of low CIBIL score, the bank asks for a guarantor to take part in your loan application process. Lenders feel more secure when a guarantor involves in the process because when you do not pay your dues, the lender can ask the guarantor to pay the outstanding loan amount.

Means to improve a low credit score

Never miss a single deadline: If you occasionally miss out on repayments, then it’s the time to correct it by paying your credit bills on time. Because with each EMI failure, you pay a certain amount as a penalty, and your credit score gets a deduction of a few points. To correct it, you can set reminders to pay your credit bills on time.

Avoid too much credit: It’s time to say no to some because getting involved in too much credit can affect your personal and social life. So, next time you get a call for a new credit card, try to say no or take it when you actually feel that you can manage multiple credit cards.

Long tenure is good: Suppose you take a personal loan from IIFL Bank of Rs 1 lakh and you choose repayment tenure of 1 year then it will be difficult for you to pay it back on time. To make the repayment convenient, you can opt for a longer tenure.

Say no to multiple loans: If you are living with multiple loans and suddenly you find yourself in any kind of emergency, you may miss the last date to pay your EMI. And once it happens, things get difficult day by day. So, to be in a comfortable situation always, try to avoid multiple loans.

What is a good credit score and its profits:

A good credit score means having a CIBIL score of over 750 points.

Excellent Very good Good Fair Poor Terrible 800-850 750-799 700-749 650-699 600-649 300-599

Profits of good credit score

Lower rate of interest: When you have a good CIBIL score, you can enjoy paying lower interest on loans.

Many other benefits: Credit card companies provide you credit cards with a higher credit limit, better benefits like no annual fee, cash backs or reward points.

More discounts: Lender may offer you a discount on processing fees or some kind of waiver on other charges.

Instant approval: Borrowers, who hold a good track record on repaying their loans or good CIBIL score, can get instant approval on their loan applications.

Conclusion

Actually, a lender hesitates to offer personal loans to the borrowers who have a low credit score. However, there are several ways you can avail personal loans even if you have a low credit score, but none of them will prove a right fit for you. In case of emergency, you can have them, but your primary focus should be on improve your CIBIL score because there are many benefits you can enjoy with good CIBIL score in the long run.