A CIBIL or credit score is a three-digit number used by lenders to determine one’s credibility. Generally, it is issued in a range of 300-900 and higher the numbers better the grade of creditworthiness. Most banks and financial institutions consider a credit score of 750 or more to be excellent. So if you are applying for a loan with a score of 550, things might get difficult for you.
However, in the below post, we’ll discuss things to know about CIBIL score, how you can boost your score, and what are the cons of applying for a loan with a CIBIL score of 550.
Things to know about credit score
Your credit score is based on several factors including your repayment history, closure of accounts, debts owed, etc. It keeps changing with each of the above mentioned transactions. Here are a few things you must know about credit score.
Reasons behind a poor credit score
Below mentioned are a few reasons why your credit score is poor.
My credit score is 550. Will I get a loan?
As already mentioned, your credit score is a reflection of your credit behavior. It shows the lender how well you can manage your finances. A credit score of 550 is definitely not up to the mark as it shows that you haven’t been creditworthy enough in the recent past.
Most banks or lenders look for a score of 750, when it comes to approving a loan application. If your score is less than that, you must work on improving your credit score. However, if you can convince the lender to judge your creditworthiness on the basis of your current financial behavior, things might turn your way.
But it is not recommended to apply for a loan with a poor credit report as it could hurt your score even more. This happens as each credit application subjects your credit score to a hard inquiry.
How can I improve my credit score?
Here are few tips:
Pay on time: This one’s obvious. Pay your dues on time every month to boost your credit score, apart from avoiding high interest rates. You can consider switching auto-payments to never miss out on one.
Clear off pending dues: If you have any pending credit card/loan dues, pay them off. This will help boost your credit score and further smoothen the loan approval process.
Check your credit report: Go through your credit report to check for errors. And if you come across any, raise a dispute. Remember, errors in your credit report can cause a dip in your CIBIL score.
Practice good credit habits: Chalk out a financial payment plan. Try to pay your dues on time, and control your spending habits.
What are the cons of applying for a loan with a credit score of 550?
In case of financial emergencies, you may have to apply for a loan irrespective of your bad CIBIL score. But it comes with its own set of cons. Here’s what you should know.
To sum it up all, your credit score is considered to be the first point of reference, when it comes to a credit or loan application. One of the best ways to build your credit or CIBIL score is through a credit card. Besides, you can also consider getting secured loans. However, nothing really beats practicing healthy credit habits.