“80 percent of the loans that get approved have a score above 750. However, credit score is not the only parameter which lenders look at for approval and deciding the interest rates” CIBIL data says. Well, this does not mean that you can get a personal loan with a low CIBIL score as there are a number of other factors associated with the personal loan approval. You can get a personal loan with a low credit score but you must know about the consequences of it. 

To know more about options, you can exercise with a low credit score, its disadvantages and ways to improve it, read this article.

What is the credit score?

Credit score is a numerical representation of your credit behavior. It’s a three-digit number which shows the individual’s behavior towards managing his credit. 

Difference between Good and Bad credit score

A bad credit score reflects that a person is highly irresponsible while managing his credit bills. A person who has continuously cracks timely EMIs or credit payment, likely to have a bad credit score. Besides this a person having a mix of delayed and missed payment is supposed to be a low credit score holder. Low credit score is seen as the inability of a person to repay the loans. So, by looking at the credit history, a lending institution decides whether a loan is given to a person. On the other hand, an individual who has made timely payments said to be a good credit score holder and has a better chance of getting a loan

Example

Suppose you download best personal loan app to get a personal loan, then you see that that you’re not eligible for a personal loan as you have a low CIBIL score, as a result you can be denied for the personal loan. In simple words, even modern lending methods can’t save you, if you have low credit score.
 

How does a bad credit score hurt you?

• Not only for a personal loan, the borrower loses his credibility to get any loan be it a car loan, business loan, home loan or credit card.

• As there is huge risk involved in lending a loan to an uncreditworthy, usually, the lender offers a loan at a higher interest rate. Also, the lender may impose strict terms and conditions while offering the loan.

• Though the chance of getting an unsecured loan gets decreased, the lender may ask you to provide some collateral like gold, property, car, etc., as a lender fears to take the risk.

• Lender may ask you to involve a guarantor while applying for a loan, as the risk shifts to Co-borrower. If one fails, the bank can recover the money from the Co-signor.

How to improve CIBIL score 

• Make timely payments: Remember you want to improve CIBIL score, hence missing out on payments may impact your credit score negatively. To make time-bound payments, you can implement various methods like weekly payments, auto payment, etc.

• Limit your credit: Since you want to recover CIBIL score, make sure you don’t burden yourself with surplus credit. Maybe this time you can say no to more credit cards.

• Choose optimum repayment tenure: Suppose you take a personal loan  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 simplify things, always choose an optimum tenure. If you feel that long tenure can help you, go for it.
   

• Say no to multiple loans: It you are living with multiple loans and suddenly an emergency arises and you miss out an important date to pay your EMI then it becomes difficult to maintain the loan. Suppose, you have an existing personal loan and you want to take a car loan then it will be an unwise thing. To make things easy, you must repay your personal loan first and then go for a car loan until your credit score improves.
   

How good credit score helps you

• Lower interest rates on loans: When you have a good CIBIL score you can enjoy paying lower interest on loans.

•  Get credit cards with higher credit limit, better benefits, and rewards: Credit card companies provide you credit cards with higher credit limit, better benefits like no annual fee, cash backs or reward points.

•  Discounts on processing fee and other charges: Lender may offer you a discount on processing fees or some kind of waiver on other charges. 

•  Quick approval on a loan application: Borrowers who hold a good track record on repaying their loans or good CIBIL score you can get instant approval on your loan applications.

 
Conclusion

At the time of evaluating your personal loan application, the lender sees your credit score and decides accordingly. Since an applicant with a low credit score poses a threat to the lender, he may reject the loan application or offer a loan at a higher rate of interest rate. However, both scenarios are bad for an applicant. So, instead applying for a personal loan at a lower credit score, improve CIBIL score and then apply for a personal loan, unless there is an urgent requirement.