When it comes to applying for a personal loan, certain factors need to be taken into consideration, one of which is your credit score.
Possessing a good or positive credit score is very important to have your loans approved. Banks and financing institutions often decline loan applications of the individuals with a bad credit score. To know what the reasons behind a bad credit score are, have a look at the points mentioned below:
Factors Affecting Credit Score
- Existing loans: If you have any existing loans or debts, it may hamper your credit score. Furthermore, an inconsistent repayment behaviour of missed or late payments can negatively impact your credit score.
- Loan defaulting: Defaulting on a loan is a major red flag to lenders and can completely ruin your credit score. Lenders will also doubt your capacity to repay any future loans as well.
- Credit utilisation: The bank may check your credit utilisation habits. If you are regularly maxing out your credit card, the over-utilisation of credit can come across as a warning while obtaining a personal loan. Moreover, making too many loan applications can also imply that you are credit hungry. Thus, you need to make sure that your credit utilisation is properly managed.
How to get a personal loan with bad credit score?
So, if you are already affected by a bad credit score, you need to improve your score in order for your loan application to be approved. Improving your credit score is not an overnight operation and it takes a lot of patience and effort.
Let’s have a look at the 6 ways through which you can improve your credit score and eventually get a personal loan:
Catch up with your existing loans
Do not keep any impending loans while applying for a new personal loan. Clear out all your previous loans. Start paying off your instalments and make the payments on time.
Relationship with the bank
Choose your regular bank to obtain a personal loan scheme as this will help the application process to run efficiently. Maintain a savings account or a fixed deposit account with a bank where you are applying for the loan.
Keep your income steady and regular
You need to maintain a steady and regular income flow, no matter what profession you are working in. Your occupation plays a role here, as some professions come with employment stability while other professions such as freelance specialists or professionals working on a commission basis might find it difficult to maintain a stable income flow.
Apply with a co-signer
If you can apply for a personal loan with a co-signer who is eligible and fulfils all the criteria dispensed by the bank, you might get a personal loan quick. A co-signer takes the full responsibility if you cannot pay off the loan amount.
Choose a secured loan scheme
A personal loan scheme where you can present an asset as a collateral such as a house or a car, can help you getting a personal loan even if you have a bad credit score.
No short-term, high-interest loan
If you are in a dire need of money, for which you are looking for a personal loan, avoid choosing a short-term loan scheme with high interest rate. You may end up getting one more debt on your already existing liabilities and it will further deteriorate your credit score. Similarly, avoid taking Payday Loans as high interest charges on these loan schemes may lead you to more financial crisis.
Regular checks on your credit score can help you keep track of it and correct it before it veers off course completely. Incorporate the steps above will help bring your credit score on the right track and improve your chances of having your loan approved.