Rajiv Raj, Co-Founder & Director, CreditVidya, CreditVidya | Mumbai | October 10, 2016, 11:58 IST | IndiaInfoline.com
Although, the mainstream banks are now totally relying on the CIBIL scores to give loans to the borrowers, those who have low or no credit score can still have some of the options left.
Having a bad credit score can severely limit your borrowing options. However, it is not necessarily the end of your ability to avail credit when required. Although, the mainstream banks are now totally relying on the CIBIL scores to give loans to the borrowers, those who have low or no credit score can still have some of the options left. Here are seven things you can do where you will not be pulled down by your credit score.
Get a Secured Credit Card
Getting a secured credit card is not only easy, even if you have low credit score; it is also highly effective strategy to rebuild your CIBIL score. The concept of secured credit card is very simple. You make a deposit in the bank and the bank issues you a credit card with the credit limit ranging between fifty to hundred percent of your total deposit. Once you have been issued a secured credit card, you can use it like any other credit card and start paying the dues on a monthly basis to build your credit score.
Get Add On Credit Card
If you do not have a credit score high enough to get a credit card, you can opt for the add-on credit card. Most of the banks offer add-on credit cards for the family members. These credit cards can be issued for spouses, children, parents and siblings. If any of your family members has a good credit score, they can apply for an add-on credit card which you can use. Many banks in India allow the credit card holder to apply for as many as four different add-on credit cards. However, these credit cards are only issued after carefully considering the repayment capacity of the credit card holder. Also, if you default on the credit card, it will hamper the credit score of the family member who has taken the card on your behalf.
Get a Prepaid Credit Card
Another option for those with bad credit score is to get a prepaid credit card. All the major banks in India offers prepaid credit cards to the users. These cards are convenient, flexible and reusable. However, unlike a secured credit card, they will not help you in building your credit score.
Loan against Collateral
Today the credit market has become extremely efficient to cater to the needs of all the borrowers. Even if you do not have a credit score, you can always opt for loan against collateral. The collateral can be gold jewellery, Fixed Deposits, shares, property, home etc. The bank or the financial institution doesn’t check your credit history as the risk is considerably lower. They can always sell off the collateral to recover the loan amount.
Get a Co-Borrower with Good Credit History
If you have a lower credit score, getting a co-borrower with excellent credit score can help you in availing the loan.
Peer to Peer Lending
Peer to Peer lending is an extensively used platform in many foreign countries which caters to the need of borrowers. The peer to peer lending platform allows the creditor and borrower to interact freely with each other without any mediator. The concept is steadily gaining popularity in India. You can avail small personal loans from these peer to peer lending websites.
Find the Financial Services Company that Offers Loan Even on Low Credit Score
Though the mainstream banks may not be so keen to provide you credit if you have a low or no credit score, many non banking financial institutions are more flexible in this regards. These financial institutions check a number of soft data to decide the creditworthiness of the borrower. For instance, if you have previously defaulted on your loan, but now you are working in a big company with steady income, the financial institutions can offer you credit.
Friday, August 10, 2012 by Rajiv Raj
Aditya Nayar, an IT engineer in Bangalore, lost his job in 2008 during the global recession. He tried his hardest but was unable to get one for the next two years. He had a personal loan and a couple of credit cards to pay off. By the end of 2009, he ran out of savings and defaulted on his loan and one credit card. He settled both amounts and cancelled both his credit cards as well. He managed to get another job with a software solutions firm in early 2011. In January 2012, he applied for another credit card. His application was rejected because of his poor credit history. The credit card company informed him that it would be very difficult for him to get any loan because of his poor record. Nayar went into depression because he had plans to get married and set up a home.
A poor CIBIL credit record has dashed many dreams. But there are ways of rebuilding your credit record and history. One option is that of a secured credit card. A secured credit card is a card that is issued by a bank against a cash deposit, usually a fixed deposit.
ICICI Bank, HDFC Bank and Axis Bank are three big banks that issue secured credit cards in India. This is how a secured credit card works: You make a deposit into the bank, say Rs. 50,000. Depending on the bank, the credit limit on your card could be anywhere from 50% to 100% of your deposit. The risk for the bank is minimised because if you default the bank can take it out of the deposit. The reasons include late payment fees, minimum amount due or if you default. Basically a secure credit card is a debit card by a different name.
Regular payment of dues improves your credit score and over a period of 18-24 months, regular usage and payment of credit card dues goes a long way in boosting your credit record. And since, you can only spend as much money as you have in the deposit, there is no way you can incur more debt.
While taking a secured credit card keep the following points in mind:
- Make sure the bank reports all your details to CIBIL. After all the whole point of a secured credit card is to improve your credit history with CIBIL and to increase your CIBIL credit score.
- Some banks charge fees like processing fees, annual fees etc. Please check with all the banks on who can give you the best deal.
- Try and get a deal where your fixed deposit can earn interest. This way, your money does not lie idle.
Source : http://goo.gl/Pl2I1