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Can I Get a Loan With a Credit Score of 550?
While considering a loan application, lenders determine whether or not the applicant is capable of repaying the loan. In other words, your loan application might be accepted or rejected based on your creditworthiness. A high credit rating of the applicant means a lower the risk of default for lenders. Credit scores are generated by credit rating agencies, CIBIL being one of them. A CIBIL report reflects your credit history and the credit score reflects your creditworthiness. A CIBIL or credit score is a three-digit number, issued in the range of 300-900. Higher the credit score better the credibility of the borrower. Most banks and financial institutions consider a credit score of 750 or more to be excellent. A credit score of 550 is generally insufficient to get a loan but not impossible. Some lenders may approve the loan for a score of 550, but at a higher rate of interest, fees, and charges.
Factors Responsible for a Low Credit Score
CIBIL is one of the four credit rating agencies that generate a credit score. A CIBIL credit score generally called a credit score. There could be multiple reasons for a low credit score or a dip in your credit score from a good score.
- Late or missed payments on loans or credit cards.
- Multiple Credit inquiries or loan applications within a recent period.
- Poor credit utilization ratio like maxing out or exceeding your credit card limit.
- Poor credit mix like more unsecured loans than secured ones.
- Errors in your credit report.
Can I get a Loan with a Low Credit Score?
A CIBIL Score of 750+ is preferred by lenders while considering a loan application. Thus, the importance of having a credit score close to the upper spectrum is immense. Securing a loan with a score of less than 600 may get challenging. Some lenders approve loans with a score as low as 550. However, there are some pitfalls of applying for a loan with a low credit score.
- Lower Loan Amount: Your loan application might get approved but the amount sanctioned could be lesser than what you applied for.
- Higher Interest Rate: A low credit score calculation implies a higher risk for lenders. To mitigate this risk, the lender may apply a higher rate of interest. And a high-interest rate increases the total cost of your loan as it means a higher interest payout.
- Rejection of Application: Even when you have applied for a low CIBIL score loan, there’s no guarantee that your loan will be approved. This may further bring down your credit score.
How to Improve my Credit Score?
If for some reason your credit score is less than ideal, there are ways to steps to rectify and increase your credit score.
- Make timely payments: The importance of clearing your dues on time cannot be overstated. This will not only help in improving your credit score calculation but also helps in avoiding high interest on late or missed payments. You can either set reminders for bill payment dates or switch to auto-payment mode.
- Clear Pending Dues: Have a clear strategy of paying off high-interest loans/ credit card dues first. It is advisable to clear past dues before applying for a new loan. You can contact your lender for debt repayment options. You can also go for a loan settlement option for some of your loans. Your credit score will take a temporary hit but you can start afresh for increasing the same.
- Check your CIBIL Report: There are many websites where you can download your free credit report. You can also check your credit score with your PAN card number. If there are any errors in the CIBIL report that have decreased your score, report it to CIBIL immediately.
- Practice good credit habits: Always make a budget for your loan payments. It is easier to tweak your spending habits when you know how much loan payment you have to make each month.
Conclusion
Using and managing debt smartly can help you achieve your financial needs and goals. However, you must behave responsibly while availing of a credit facility. A disciplined approach towards taking and repaying credit will make sure that you always enjoy a good credit score.
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