Denied Loan Due to Low Credit Score? Here’s what you can do

A good credit score is vital to get your loans or credit cards sanctioned from lenders. However, not many people know of this and often apply for a loan or credit card without checking their credit scores. When lenders deny their loan application due to low credit scores they fret as they don’t know what to do about it especially when they need money urgently. If you too have been denied loans from lenders and are looking for solutions, read further.

Before we get to the point, let me ask you a simple question – what did you learn when your loan application got rejected due to poor credit score? If you know the answer to this then good for you else the answer is that before applying for a loan (be it a personal loan, car loan, home loan, or other) always check your credit score to know the probability of your application being sanctioned by a lender. Develop a habit of checking your credit report regularly as this has various benefits and some of them are:

• Assess the probability of getting a loan application approved
• Allows you to improve your credit score in time
• Helps detect and correct credit report errors in time
• Helps in identifying identity theft
• Helps to avoid unnecessary hard enquiry
• Helps you know the rate of interest and offers available for your credit score

Usually, a credit score or CIBIL score ranges from 300 to 900. The upper limit shows that you have handled your credit well in the past whereas the lower limit shows that you cannot be trusted with credit. Most lenders approve loan applications of people with their credit scores higher than 750. However, it must also be noted that credit score is not the only factor that creditors look at for loan approval or deciding interest rates. They also consider other parameters such as the type of product (secured or unsecured), loan tenure, and loan amount to decide whether to approve a loan or not.

To stay abreast with your latest credit score either request your credit report from one of the four credit bureaus, i.e., TransUnion CIBIL, Equifax, Experian or CRIF Highmark or register with Paisabazaar.com and instantly view your credit report and get monthly updates free of cost.

Good, Fair, and Bad Credit Score

Although credit bureaus have not specified a range or number as good or bad the credit score gradation is usually as follows:

• Above 800 – Excellent
• Between 750 and 800 – Good
• Between 700 and 750 – Fair
• Between 650 and 700 – Poor

As per the gradation given above, if your credit score is poor and have been denied for loan then you can choose to follow either of the two things.

Tips to Improve Your Credit Score

If you don’t have to apply for a loan urgently, then you can try to improve it by following the tips given below:

• Pay off your bills in time: Loan EMIs and Credit card dues
• Check your credit report for errors and resolve them
• Don’t close old credit accounts
• Avoid being a co-borrower or guarantor
• Avoid multiple credit enquiries
• Develop a healthy mix of credit

Try One of These Alternatives

If you have a financial emergency and need a loan as soon as possible, then you can consider trying one of the following options:

• Apply with NBFCs

Non-Banking Financial Institutions (NBFCs) are financial entities that do not hold banking licenses but provide a few financial products such as loans and credit cards. In comparison with banks, NBFCs are more flexible with credit scores. However, they also charge a higher rate than banks.

• Borrow with your spouse

If you’re married and your spouse is earning and happens to have a good credit score, then you can ask him/her to apply for the loan with you. Doing this will increase your chances of getting loan sanctions from lenders. However, late, missed, or incomplete repayments will affect both your and your spouse’s credit score.

• Peer to Peer Lending

If you have a low credit score, getting a loan from Peer-to-peer (P2P) lenders can also be an option. These entities offer loans of small amounts and may not require collateral or security from borrowers, however, the loan will be offered at a high rate of interest

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