If you are looking for a loan in the near future, it is vital to have a strong credit score. Generally, a credit score above the level of 700 is believed to be good, which not only helps you secure a loan but also get it at a lower rate of interest.
Therefore, a credit score below 700 can be a stumbling block in procuring a personal loan. As your credit score continues to slide, the situation turns from bad to worse.
Remember that it becomes a cause of concerns for a prospective borrower when the score falls below the level of 600. In other words, if your credit score falls below 600, it should set the alarm bells ringing.
However, the level of concern depends on two key factors: type of loan and category of lender i.e., bank or an NBFC.
Credit score ranges and concerns
800–850 (Excellent): There is no concern and you can secure best interest rates and approvals.
740–799 (Very Good): There is a small concern but you can get easy approval with competitive rates.
670–739 (Good): There is a moderate concern that most loans will be approved but at slightly higher rates.
580–669 (Fair): There is a matter of significant concern as interest rates will be high and strict approval conditions.
Below 580 (Poor): This is a matter of high concern where it is difficult to get approval. Interest rates would be high, and there will be a need for secured loans or co-signers.
Key concerns with low credit scores
Rates of interest: In case of low credit score, banks tend to charge a higher rate of interest to offset risk.
Loan rejections: Banks can even reject loans and it becomes hard to get approved for credit cards, mortgages, or personal loans.
Lower credit limits: Banks may offer lower borrowing limits to the applicants with low credit score.
Stricter loan terms: Banks may ask for more paperwork and higher down payments, or even collateral from the applicants who have a poor credit score.
If your score is below 670, it’s worth improving it before you start applying for loans.
(Note: Raising a loan comes with its own risks. So, due caution is advised)
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