Your credit report is a key factor that lenders will use to check your financial health. It is gauged by a credit score which is a three-digit credit score that can range between 300 and 900. For people who have never borrowed a loan or who haven’t used a credit card, their credit score is mentioned as NA. Thus, getting a loan of a high amount can become difficult if you do not have a history to justify your borrowing behavior. As you get your first credit card or you avail your first loan, the credit bureau assigns you a credit score number. Depending on your repayment behavior, this number may increase or decrease.
Missed payments, defaults, and even mistakes in your credit profile can impact your credit score negatively. Having a poor credit score can be big trouble in case you wish to apply for a personal loan or any other type of credit. The good thing is that you can build your credit score with regular payments and the successful closure of your loan accounts.
However, if you wish to apply for a personal loan despite having a poor credit score, here are some tips –
- Check if there is any mistake in your credit report: In many cases, the credit score can go down not because of your fault but because someone misreported someone’ else’s missed payments on your credit profile. Different lenders report to the credit bureaus and there is a high chance of faulty information and even fraudulent attempts. As a result, there are occasional cases of credit misreporting. You can check your detailed credit report to see if there is no misreporting on your credit report. Getting the mistake fixed will restore your credit score.
- Choose a loan app for getting the loan: Most conventional lenders are weighed down by burdensome regulations and may not be able to provide loans to people with bad credit. In such a situation, the best choice is to go for a loan app that not only lends you based on credit score, but they also consider several other factors. These apps tend to use advanced computing technologies like artificial intelligence and machine learning to better judge the creditworthiness of a loan applicant. Therefore, you have a better chance of getting a personal loan from an app than from any other conventional lending institution.
- Present proofs of higher income: Credit score does not consider the most recent income level of the person in consideration. In case a lender comes to you and says that you have a low credit score, you can boost their confidence about your ability to repay your loan by showing the most recent income proof. This can also be done by showing bank statements where you have savings or by showing proofs of deposits, investments as well as other capital that you may have. The concept is to prove to the lender that you have the ability and commitment to repay the debt you are taking on.
- Find someone to co-sign your loan: When you apply for a personal online loan, you may be given the option to bring in a friend or a family member to co-sign your loan. The concept here is that you are assuring the lender that there is more than one person who has skin in the game. When you bring in someone to co-sign your personal loan, the lender will be more confident with the application because they know that even if the primary applicant may experience problems in loan repayment, they can ask the person who co-signed the loan to take care of payments while things are being sorted with the primary borrower.
- Reduce the loan amount you are seeking: This is another good way to see if you can get a loan even with a low credit score. Many times, the lenders may be hesitant to lend you the amount you are seeking because your credit score is low only for that much amount. In this case, you have a simple choice. Just reduce the amount of loan you are seeking. Mostly this will allow you to borrow because the lender will see that they are now taking the lower degree of risk and maybe you are able to match the credit score and amount to be borrowed to match with each other.
- Be ready to pay higher interest rates and fees: This is the last resort. In many cases, people with low credit scores are not considered eligible for premium or discounted interest rates for a personal online loan. In such a situation, you must be ready to take the loan at full market rates which can be slightly higher in terms of both the interest rate that is levied and the processing fee and/or other charges that the lender may require you to pay.
Always keep in mind that borrowing with a low credit score has its own set of limitations. Your goal should always be to maintain as high a credit score as possible. This can only be done by being financially disciplined and always paying back your loan in full and in time.