Banks and other financial institutions in India check your credit report before approving any credit facilities. They maintain a level of consistency in this regard. Any credit score over 700 is a good score (depending on the type of credit you are availing). Banks consider such borrowers as less risky compared to the ones with lower credit scores. The lower your credit scores, the lesser are the chances of banks approving your loans.
What Constitutes a Bad or an Adverse Credit Score?
It depends on the loan you apply for. In case you are Applying for a Personal Loan or a Credit Card (both unsecured loans), any score less than 650 is not great. Banks consider credit scores below 600 or 575 as bad for Housing Loans and those having adequate collateral. Thus, a bad credit score is a relative factor. However, any score below 500 is bad. Banks in India generally do not sanction loans to people having a credit score of less than 500. So, what are the options left for such people with adverse credit record?
You Have an Adverse Credit Score. What Should You Do Now?
Find out the reason why you have an adverse credit score? Have you missed out on your loan repayments? Are you in the habit of applying for loans frequently? All these factors hurt your credit rating.
Obtain your credit report and check it up thoroughly. Errors in the credit report can affect your rating. It might contain details of loans you had never availed. Some of the loan accounts might still be open even after you have closed them. There can be a duplication of accounts. Take the necessary steps to bring your credit score in the acceptable range.
What Are the Funding Options for You if You Have a Bad Credit Score?
- Dip Into Your Savings: If you have a fixed deposit, you can avail Credit Card against the FD receipt. Banks mark their lien on the receipt but allow you to make your payments as you do on your regular Credit Card. They resort to the right of set-off only when you default on your payments. It is a fantastic way of improving your credit score. Prompt repayment of your Credit Card dues can help in improving your credit score cross the threshold limit.
- Friends and Family Can Help: It is better to approach your friends and family for financial help when you are in trouble. They are more likely to help you than the banks and other financial institutions. They know you and understand your difficulties better than these banks. They never refer to your credit report or credit score before pitching in with their help.
- Consider Disposing of Assets: What is the use of an empty plot of land in a faraway place when you have financial issues to deal with at present? Indians have the habit of investing in real estate and gold when they have the funds. These assets can come handy in rescuing you from your financial crunch. Try selling them off instead of taking loans against them. You can Apply for a Loan Against Property, gold or any other asset during such situations.
- Co-operative Credit Societies Can be of Assistance: There are many credit societies in various cities and towns in India. They cater to the financial requirements of the local community. Such people understand your difficulties and are ready to help, provided you are a member of their credit society. The rates of interest can be higher than that offered by banks, but you can get immediate funds from these credit societies without much of a hassle.
- Take a Loan Against Your LIC Policies: Banks sanction loans up to 90% of the surrender value of your LIC policies. Banks do not make credit enquiries when they approve loans against securities like LIC policies and National Saving Certificates. The best aspect of these loans against LIC policies is that the insurance cover is available even after you avail the loan provided you pay your insurance premiums on time.
Although you can utilise the funding options mentioned above, it is advisable to improve your credit score. You can do this by buying a Credit Card, spending small amounts and repaying your loans and bills timely.
