Can I Get a Loan With a Credit Score of 550

If you are planning to apply for a loan with a credit score of 550, there are high chances that banks and financial institutions might reject your loan application. If, in case, your application gets approved, you will be given the loan for a lesser loan amount at a higher interest rate.

Taking the latter into consideration, i.e- how you can get the approval of your loan application with a low credit score, this blog will explain if you can/should apply for a loan with a low credit score, the disadvantages of having a low credit score, and how you can improve it.

Can I Get a Loan with a Low Credit Score?

Even if you have a low credit score, you can still apply for a loan, at the least. It is, however, up to the lenders, banks and financial institutions whether to approve your loan application or not. Also, it is important to note that there is a possibility that your loan application might get rejected, which will then impact your credit score again. A lower credit score, when it gets impacted again, might require a borrower to work hard for years to regain a fair/good credit score.

Generally, a low credit score hinders the loan approval process. The reason being, a major number of banks, lenders and financial institutions prefer a credit score above 750 to grant a loan as it shows the borrower’s financial health and his ability to repay the borrowed amount. If you still apply for a loan with a low credit score, be aware that you will have to pay a higher rate of interest against the acquired loan amount with fewer credit opportunities to cherish.

There are chances when a borrower is in dire need of a loan, and in such cases, he/she can connect with the lenders who lend a loan with a low credit score.

What are the Disadvantages of Applying for a Loan with a Low Credit score?

Applying for a personal loan with a low CIBIL score of 550 is a disadvantage in itself. With a low credit score, comes a lot of other disadvantages attached.

  • Firstly, lenders, banks and financial institutions might reject an applicant’s loan application on the basis of a low credit score. Secondly, with every rejected application, the number of hard inquiries will increase and credit score will decrease

  • In case an applicant gets a personal loan, he/she will be have to pay a higher rate of interest as compensation for a low credit score

  • An applicant might not be able to get the desired loan amount. For instance- Suppose, Mr. A applies for a loan of Rs. 1,00,000, but due to a low credit score, he might be given a loan of Rs. 50,000-60,000 (approximately)

What are the Factors that Affect Credit Score?

An applicant’s credit score might get affected due to the following reasons-

  • Poor/irresponsible repayment history

  • Mis-management of credit utilization ratio

  • Too many hard inquiries

  • Missed, delayed or partially-settled payments

  • Unhealthy credit mix

  • Outstanding balances

  • Issues in credit score

How to Improve your Credit Score?

Just like there are various factors that can impact the credit score, there are many ways to improve credit score too. Listed below are a few practices that a borrower should follow to improve the credit score-

  • Make credit payments on time

  • Do not leave any outstanding balances

  • Don’t settle the amount in parts

  • Avoid making multiple hard inquiries

  • Try to maintain the right balance between secured and unsecured loans

  • Use the credit utilization ratio wisely

  • Raise a dispute for errors in the credit report

  • Keep the habit of checking the credit report twice a year

FAQs
Should I apply for a loan with a low credit score?
It is generally advised not to apply for a loan with a low credit score as it might further damage the credit score with rejected loan applications; thereby making the borrower pay a higher interest rate and lose several credit opportunities.
Is it possible to improve a low credit score within 30 days?
It takes months and even years to improve a credit score.
Where can I check my credit score for free?
You can use the Paytm mobile application to check your credit score for free.
Do I need to pay a higher rate of interest when I apply for a loan with a low credit score?
Yes, you need to pay a relatively higher rate of interest as compensation for a low credit score.
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