Can you get a Loan with Credit Score of 550?

A CIBIL Score is a personal credit rating that proves a borrower’s credit worthiness. The score ranges between 300 and 900. The higher the score, better is the chance to get a personal loan approval. A personal loan for CIBIL Score of 500 is difficult to get. Banks and NBFCs prefer CIBIL Score of 750 and above to approve a personal loan. However, a few lenders may approve the loan for score of 550, but at a higher rate of interest, fees, and charges.

In the below post, we will discuss about what a personal loan is, CIBIL Score 550, personal loan for CIBIL Score of 550, factors responsible for a low credit score, how to improve your CIBIL Score, disadvantages of applying for a loan with low CIBIL Score, and FAQs.

What is a Personal Loan?

A personal loan is an unsecured loan. It is a multipurpose loan with no restriction on the end use. Thus, you can use the loan amount for any financial need. Several borrowers take this collateral-free loan to meet their emergency needs such as medical contingency, home improvement/repair, educational expenses of children, big-ticket purchase, travel, wedding, and more.

A) Eligibility Criteria

Being an unsecured loan, banks and NBFCs strictly analyse your credit history, income, existing financial liabilities, employment history, etc, to decide whether to lend or not. As the lender does not take any security to provide funds, it reviews your financial position.

  • You can borrow between Rs. 1 lakh and Rs. 1 crore.
  • This loan is specifically for salaried class. However, a few lenders may extend the service to self-employed individuals as well.
  • CIBIL Score of 750+ is preferred to avail this loan.

B) Personal Loan for CIBIL Score of 550

Only a few lenders may provide a personal loan for CIBIL score of 550. This is because, 550 is not worthy enough a credit score to provide an unsecured loan. You must check all the available offers from lenders who offer low credit score personal loan. Compare the interest rates, fees, and charges, besides other terms and conditions.

What Should You Know About CIBIL Score 550?

Your credit score can change based on your financial transactions such as EMI payments, credit card bill payments, missed/delayed payments, closure of accounts, and more. Thus, your personal credit rating is not a static figure. It may increase and decrease with each of the said transactions. The credit score 550 indicates your financial behaviour needs an improvement. You have made a few regular payments, but defaulted/missed several.

  • After all, your credit score reflects your credit behaviour. It is one of the important indicators for lenders to decide your creditworthiness.
  • Based on this rating, the lenders often decide to provide you a loan or not. So, a personal loan for a CIBIL Score of 550 is definitely difficult to get.
  • However, lenders offering loans on a low credit score do exist. The interest applicable will be though on the higher side.
  • So, to improve your CIBIL score, you must discipline your financial behaviour and pay the EMIs/bills on time. Gradually, your credit score will then get better.

Can You Get a Personal Loan for CIBIL Score of 550?

A score of 550 is not sufficient to take a personal loan from a leading bank or NBFC. The CIBIL Score 550 signifies that you have made a few mistakes down the line when handling credit, leading to a low score. For a lender, a low CIBIL score is a warning sign. It may discourage the loan-provider from trusting you with credit. Most banks require you to have a minimum credit score of 750 to consider your personal loan application.

  • If the score goes lower than 750, then you can try boost it in time before applying for a new loan.
  • However, you can convince the fund-provider to approve the loan on the basis of your currently disciplined financial behaviour.
  • A good income, recent salary hike, fewer financial liabilities, responsible spending may also work in your favour.

It is not advisable to lower your score further by applying for a new loan before boosting your CIBIL score. Every time you make a fresh enquiry for a credit card or a loan, the bank pulls up your credit report. This is considered as a hard inquiry, and greater the number of recent hard inquiries means your credit score will take a hit. Thus, if you are in need of an emergency loan, approach short-term lenders or microfinance companies, who may provide a personal loan with credit score 550.

Factors Responsible for a Low Credit Score

A good CIBIL Score can help you in times of financial difficulties. It can open doors to credit at favourable terms. Thus, you must strive to improve your credit score if it is as low as 550. After knowing your score, you can work on the factors responsible for lowering it. Below mentioned are the reasons for a low credit score:

  • A bad credit utilization ratio (exceeding credit limit on credit card)
  • Increased number of hard enquiries in the recent period
  • Missed or late payments (delayed EMI, missed EMIs, non-payment of other dues)
  • Unhealthy credit mix (a greater number of unsecured loans as compared to secured loans)
  • Errors in credit report (fix the errors so as to improve score)

How to Improve Your CIBIL Score if it is Just 550?

Here are a few tips on how to improve your CIBIL Score:

  • Check the Score: Before you apply for a loan, you can make a soft inquiry for your CIBIL score. Make sure the CIBIL report does not have any errors. The mistakes could relate with your transactional history, facts, and figures. If you find any, get it fixed as errors can lower the score. If the issue is resolved, your score may increase.
  • Clear Pending Dues: Work on your credit history. You must try and clear the loan/credit card dues. Paying these dues can mend your score. Keep a check on the bill payment and EMI date. Pay on time and see your score increase with time. You can also settle few of these debts before applying for a new loan.
  • Make Timely Payments: Set reminders for EMIs, and pay those on time. Delaying payments will add up on interest and make the loans costlier. Also, your CIBIL Score will see a dip. To avoid all these issues, you must ensure to repay on time.
  • A Good Financial Behaviour: Make a financial payment plan. You should try to repay the higher interest loans before any, and maintain minimum payments as required for other accounts. Curtail unnecessary expenses

Disadvantages of Applying for a Personal Loan with Credit Score 550

In times of financial emergencies, you may have to apply for a personal loan immediately even with a low CIBIL Score. But there are several disadvantages attached to applying for the loan with 550 as CIBIL Score.

  • Rejection of the Loan Application: If the financial institution requires you to have a CIBIL score over 550, then it may reject your personal loan application. Rejection of loan applications may further lower your score.
  • Lower Loan Amount: You may get the loan approved, but credit limit could be low. For instance, you applied for a loan of Rs. 2 lakhs, but since your CIBIL score is 550, the lender may approve a loan of Rs. 1 lakh only. This could be irrespective of the income you draw.
  • High Interest Rate: If your loan application is approved, the lender may apply a higher rate of interest. For instance, if a person with a good CIBIL Score gets the loan at 13% interest rate, then you may get the same at 18% or higher with a score of 550. This is to compensate for your lower CIBIL Score. Remember, rate of interest affects the total cost of your loan. A lower interest rate means a lower interest pay-out, and vice-versa.

Frequently Asked Questions about Personal Loan for CIBIL Score of 550

Here are the following FAQs:

Your repayment history, mixture of credit, enquiries, utilization of credit, and duration of credit services influence the credit score.

  • If you pay all EMIs and credit card bills on time, then your CIBIL sore will gradually increase.
  • Also, reduce financial liabilities and keep a mixture of credit such as secured and unsecured loans, active credit cards to maintain a good credit score.
  • Limit your credit enquiries as too many of these would affect the CIBIL score. Soft enquiries once a year is considerate.

The suitable CIBIL score for a personal loan is 750 and above. The closer the score is to 900, higher are the chances of getting a loan approval.

As understood, the lenders may charge a higher rate and fee for a personal loan that has been approved on a low credit score. So firstly, you must check and compare the loan amount, fees, charges, and rates offered, before narrowing down the options. After this, you may compare the reputation of the fund-provider, service, customer satisfaction, and other factors and pick the best offer.