You need to have a good credit history for getting a personal loan. An unsecured loan doesn’t provide the lending institution with the comfort of falling back on the security of any asset like the land, home or fixed deposit against any defaulter. A personal loan is an unsecured loan, and you must have a good credit score to be eligible for it.
In case your loan application gets rejected due to bad credit history, then it becomes challenging to get any loan in the future. Here is what you need to do so that you can improve your credit score as well as enhance your chances of getting a personal loan.
How bad credit scores affect your borrowing?
A bad credit score begins at 650 and goes down from there. Borrowers with a good and excellent credit score are eligible for lowest interest rates and best loan terms. Borrowers with poor credit scores are burdened with high rates and require accurate personal loan documents, or sometimes may not be approved for a loan at all.
If it is not an emergency, then the first step to get a loan with bad credit is to improve your credit score, so that you can comfortably apply for the loan you needed. Here are a few tips to help build a good credit score.
- Be patient
It will take time to rebuild trust and improve poor credit history. It may take anywhere between one to four years. So, you need to wait and be patient during this period.
- Settle all previous dues
For settling all your past dues, you will need to clear all your outstanding loan as soon as possible. You can negotiate with the lenders for the repayment plan based on your repayment capabilities. You need to stick to your payment regime and after the final payment, get the settlement letter from the moneylender.
- Start with a small secure loan
You have already been denied an unsecured loan due to poor credit score. At this point, applying for a bigger secured loan, like a loan against asset or loan against fixed deposit, may not be secure. To start your journey to improve credit history, take a small secured loan. It could be anything from a low credit limit or credit card against a fixed deposit or a small amount against your FD. Many lending organizations offer such products to borrowers who have a poor history. You need to check out your eligibility and apply accordingly.
- Pay on-time
While taking small secured loans, you need to use the money and then make sure to repay the loan on time. Always keep in mind that you are also improving your loan repayment track record. For example, you can use the credit card limit and initiate payment regularly. Be extremely discipline when it comes to repaying your loans. You need to ensure that you repay on time in any situation and you only borrow when you need it
- Check your credit report regularly
Keep an eye on your credit report. The credit report is the best way to make an informed decision when it comes to improving credit score and credit history. Look for a bigger ticket loan when your credit score is improved. It will go a long way in normalizing your credit history.
So, you can see that having a minimum CIBIL score for a personal loan is not the end. Start by making on-time payments, especially for credit cards. Reduce your balance on cards to under 30%. The combination of the above factors holds 75% of your credit score. It is realistic to think that making an effort on these factors could increase your credit score by 150 points in as little as three to six months. Take it as a wake-up call to improve your credit history.