The loan has become an unskippable part of human life. Whether you plan for your dream home or purchasing a new vehicle, you have multiple reasons to apply for a loan. You can apply through various banks and NBFCs, but whether you qualify for the loan or not matters the most.
Yes! Before you proceed to the documentation level, the bank checks your cibil score. Your cibil score plays a significant role in decision-making.
What is a Cibil score?
A cibil score is a parameter that banking and NBFCs use to check whether the candidate/person qualifies for the loan or not. A cibil score is the most crucial factor in the finance industry.
Whether you are planning for a car loan or a home loan, it's crucial to ensure you have a good cibil score that qualifies you for the desired amount. You should note that many other factors are considered to decide the final loan amount. However, a cibil score is the initial qualifying factor.
There are ample people across the globe with a bad cibil score. Other people would think what reasons result in a bad cibil score? Below are the prominent reasons:
Late Payment: Your earlier payment history contributes to 37% of your cibil score. Hence, if your repayment history is inconsistent, followed by late payment, your 37% will be highly affected. That's the reason you should always maintain sufficient balance for timely repayment.
Paying Only Minimum Amount: With a credit card bill, you are given minimum due along with the total due. If you miss paying the full amount but pay the minimum due, you save your penalty on the left amount. However, this has a negative impact if you continue paying the minimum due regularly.
Paying to Third-Party Debt Collectors: If you are not paying the total due amount, creditors often hire third-party debt collectors that visit you for the complete payment. In such a scenario, you lose your reputation as a white label customer.
Defaulting on Loan: If you cannot pay a certain loan amount, it will be categorized under NPA, and you will be considered a defaulter. This case primarily occurs when you clearly deny repaying the dues.
Filing Bankruptcy: COVID 19 is a global outbreak that has affected all industries. As a result, numerous businesses closed in the last 2 years. Some of them even filed for bankruptcy as they failed to maintain enough funds for salaries and other financial repayments. This is also a major reason that degrades your cibil score.
Closing Old Credit Cards: Do you know that credit history has nearly a 15% component for how long you own a credit card. If you have been using a credit card for years, you are building a strong cibil score. However, closing old credit cards lessens your credit information.
Closing Cards With Available Credit: If you have multiple credit cards, closing a card with due payment will impact your cibil score.
Applying for loans Frequently: Some people even apply for multiple loans in a short interval of time. Applying for a loan frequently affects your cibil score negatively.
Owning Only Single Loan: Many people only have a single credit card or single loan. They are unaware of the fact that having a single loan also impacts your cibil score. This results in limited information about your credit history.
Whatever the reason is, if you pursue any of the above-listed practices regularly, you may also get blacklisted from banks and NBFCs. After this, you or your family member will no longer be eligible to take any sort of loan in the future.
How does your CIBIL Score affect you?
Well, if you have a bad cibil score, you are definitely in trouble. Many banks rely entirely on the CIBIL score to judge your eligibility. However, the good news is there are nowadays many other options you can have without worrying about a bad cibil score.
Moreover, you also get multiple ways that help you improve your cibil score and make it good for future loan requests.
Now, you understand the reasons that result in bad credit history. It's time to find out the ways of getting a loan without a CIBIL check.
Apply for Collateral Loans: If you want a personal loan for financial needs, it's tough with bad credit history. However, you can choose collateral-based loans. Personal loans are collateral-free loans that are only granted to people with a high cibil score.
So, you can either build your cibil score or find a collateral loan. A collateral loan makes it easy for the banks to provide you with the best possible amount and fulfill your financial needs.
Prove Creditworthiness: As you have a bad cibil score, it's tough for the banks to lend you desired money. Here, you need to show creditworthiness to get an approved loan. If you are a working professional, show them your bank statements, salary slip, and other income proof. This is the best way to build your creditworthiness and increase your chances of getting a loan. Your income source will help the bank/NBFCs to consider your request and approve your loan.
Get a Guarantor for the Loan: If you are applying alone, likely, you won't get a loan amount. However, if you apply for a loan alongside the partner, boost your loan approval chances. Adding a guarantor ensures you or the guarantor are available to pay the dues monthly. Often your family members are considered as the guarantor for your loan request.
Apply for a Lower Loan Amount: The best way to increase your chances of getting a loan (with a bad cibil score) is by applying for a small amount. Sometimes, you don't have a good cibil score to get a high loan amount but have a low cibil score that can still qualify for a specific loan amount. You should hence try applying for a lower amount.
Resolve Errors in Your Credit Report: If your CIBIL report is marking you as a defaulter, this doesn't always mean you have a bad cibil score. There is a possibility of misreporting that resulted in a low CIBIL score. If you are sure about the issue, you can inform the bank/NBFC about the issue and get the report rectified to boost your loan approval process.
In case of misreporting, it's not your mistake, but it's important to rectify it. Inform the concerned authority about the issue and request that they re-verify the credit history for a fresh CIBIL score.
Request to Consider Your Case with an NA or NH: If you don't have a credit history, zero loan in at least 36 months can be the reason. You can request the lender to mention NA or NH in the credit report for such a case. NA or NH denotes that the customer has had an inactive credit period in the last 36 months. If they agree to mark NA or NH, your probability of getting a loan at a low interest rate will increase.
You have learned about multiple opinions to get a loan without worrying about your cibil score. However, you should note that there are a few limitations with such loans.
High Interest Rates: When you are not applying for a loan with a good cibil score, you have high chances of getting a loan at high interest rates. The reason being, banks always levy high interest rates as you have high chances of default based on your previous record.
Short Repayment Tenure: Another demerit of taking a loan without credit check is the short delivery period. Often the repayment tenure is short compared to standard repayment options.
So, if you have no other option, you can choose such loans (often called payday loans). However, you should always focus on improving your cibil score. Below are some proven practices that can help you improve your CIBIL score.
Check Credit Reports Regularly: It's always crucial to keep track of your credit history and check credit reports regularly. In case you find inaccuracies in the report, you can report them immediately and correct them. Many websites provide you with a monthly credit report.
Keep Track of Money you Owe: Collect all your bills and create a plan to pay them all. Follow the snowball rule where you start paying off small dues and move to the bigger ones. Another method is the avalanche method, where you pay for high-interest bills.
Ask for a Credit Limit Increase: If possible, you can ask to increase your credit limit. This will decrease the credit utilization ratio and will help you build a good cibil score.
Mix Your Payments: If you need money, never rely on a single payment option. Instead, learn to use different financial assets like credit cards, home loans, personal loans, etc. Don't forget to maintain a repayment plan simultaneously.
So, these are some good practices that you must follow to bring your cibil score in a good position and become capable of low-interest rate loans.