Raising personal loan could be hard for applicants with credit score below 650. THIS is what you can do

If you are planning to raise a personal loan and happen to have a poor credit score, the chances are that your loan application will be declined. Even if it is approved, the interest rate would, invariably, be relatively higher. Typically, banks check a borrower’s credit score before taking a decision over its loan.

And when the credit score happens to be anywhere between 600 to 650, the bank charges a higher rate of interest.

These could be several reasons for poor credit score:

1. Poor payment history: When you miss a payment or two, your payment history tends to suffer. This usually leads to an adverse impact on credit score.

2. Errors in your report: When there is an error in your credit report, this could reflect in your credit score, albeit wrongly.

3. Lack of credit history: When you are a young professional or a student, you will not have a credit history. Consequently, your credit score would suffer.

To rectify the above problems, these are some of the steps one can take.

For higher credit score, take these steps

1. At the outset, it is recommended to check your credit report and fix the errors in it, if any.

2. If the poor score is an outcome of poor credit history, then one could first get a secured credit card. Read this to know more about secured credit cards. This helps build the credit score. Later, one could apply for a loan on relatively better terms and conditions including lower rate of interest.

3. Another way to give an impetus to credit score is by maintaining a healthy credit mix. For instance, a mix of credit card, home loan and car loan is considered a better credit mix than just one category of loan.

4. Finally, if you use a credit card then keeping credit utilisation lower than 30 percent goes a long way in maintaining a healthy credit utilisation. This also helps in maintaining a good credit score.

Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.

For all personal finance updates, visit here