How to Get a Personal Loan When You Have a Bad Credit Score
A personal loan comes to your rescue in case of financial emergency as you can use it for multi-purpose such as medical emergency, home renovation, international trip, wedding, or even for debt consolidation. But not everyone can be eligible for a personal loan in UAE as several things are needed to check before the lenders decide whether or not to offer a loan.
Credit Score is amongst the primary thing that the bank or lender consider. Lenders measure your ability to repay finance by checking your credit score. This score sums up your credit history, the amount of credit you’ve taken, your repayment behavior, and the like. Since PL is an unsecured loan, a consumer finance provider will determine if offering you credit would be a risky proposition or not.
While you may have heard that people with bad credit can’t opt for consumer finance, this is not entirely true. Here are some important tips that you should follow to avail PL irrespective of a poor credit score.
What is a Credit Score and why it is important?
The bank and financial institutions check your creditworthiness through your credit score. A credit score is an aggregate depending on your repayments or loans that you’ve done. It considers the credit or loan you’ve taken and how consistent you’ve been on your payment. The credit score is one of the most important parameters that are utilized to determine the approval of personal finance.
Well, the reason why a credit score is important is that it determines major attributes of PL such as finance amount, repayment tenure, personal loan interest rate, etc.
What Factors Leave A Negative Impact On Your Credit Score?
Your credit score is an indicator of your financial habits, it keeps on changing based on how you handle your credit cards and loans. There are some factors that can significantly hurt your credit score and they are as follows:
- Consumer Finances: Since PL is an unsecured loan, opting for too many personal finances can hurt your credit score significantly.
- Credit Utilization Ratio: It is basically a ratio of your credit balance to the total available credit limit that has been given to you. A higher credit utilization ratio shows that you’ve been using the available credit limit carelessly and makes the lenders find you as a credit hungry borrower which can hurt your credit score. But if you maintain a ratio of 30% or lower, it will make you a responsible borrower in the lender’s eyes. So, keep your credit utilization low to maintain a good credit score.
- Payment History: When you opt for a loan or a credit card, you need to repay the pre-decided amount on time. Your credit score is an indicator of your payment record. So, if you fail to repay your loan installment or credit card dues on time, your credit score certainly takes a hit. Because it may be viewed as poor financial planning and poor credit score will make it difficult for you to take a loan or other credits in the future.
- Paying Only Minimum Due Amount: You might believe that paying only the minimum due amount on your credit card or slightly more than the minimum amount is enough to keep the things under your control but that’s not true. While the lender may not be entirely concerned that you’ve an outstanding balance, AECB (AI Etihad Credit Bureau) also takes it as a negative sign. For AECB, the outstanding balance is not a positive sign and tends to lower your credit score significantly.
- Not Having Any Credit At All: It may sound like that you are in a safe zone if you don’t have any credit cards or loans at all but in reality things are opposite. You know, why? Because not having a credit history simply means that your credit score is zero by default. In such cases, the chances of getting a rejection of your credit card or loan applications are higher as lenders have nothing to check your creditworthiness.
- Multiple Rejected Credit Card or Loan Applications:If you apply for a credit card or any type of finance and your application is rejected, you apply with some another bank, and so on. Such things take a hit on your credit score for two main reasons. The first thing is that AECB considers continuous rejected application a negative sign and second reasons is that every time a bank requests AECB for your credit information, your credit score negatively affects.
How to Avail PL with Bad Credit Score?
When you have a bad credit rating, it might be challenging for you to opt for a personal loan in UAE. However, it is not impossible. Here are some tips that you should follow to avail PL despite having a low credit rating:
Prove That Your Income Is Enough for Paying EMIs on time
If you have an additional source of income or you have a steady source of income, a lender may be willing to offer you consumer finance despite having a bad credit rating. However, you may have to pay a high personal loan interest rate when you prove your eligibility for PL in this manner.
Apply for A Lower PL Amount
Asking for a higher finance amount with a bad credit rating shows that you are more risky to the PL provider. As per the lender’s point of view, these are basically the indicators that you may have missed on repaying your credit card or loan amount. Thus, they might hesitate in offering you a higher loan amount. But if you apply for a lower finance amount, bank or lender may feel more comfortable offering the PL to you, as the lower amount can be paid easily.
Correct Mistakes in Your Credit Report
There is a possibility that your credit report might have a few errors. This happens when the latest information has not been updated timely in your record. Such mistakes can take a hit on your credit rating for no fault of yours. That is why, it is quite important to keep an eye on your credit report and correct the mistakes whatever you find. This will help you to maintain a good credit score and increases your chances to avail personal loan in UAE.
Apply For PL with A Co-Applicant or Secure a Guarantor
If you have a poor credit rating, you can still opt for a PL by involving a guarantor or a co-applicant. Well, it is quite obvious that you will need to ask the other applicant since they will require to finish KYC formalities as well as provide his/her signatures too. The benefit here for you is that if the lender finds the guarantor or co-applicant a responsible borrower with a steady source of income and good credit rating, they are more likely to offer you a loan to you.
Though you can apply for a personal loan in UAE despite having a bad credit rating. But keep in mind that lender might hesitate in offering you a high loan amount or they might sanction PL at the high personal loan interest rate. That is why it is important to maintain a good credit score to avail PL at a competitive interest rate and low processing fee. This will ultimately help you in repaying the loan with ease.