How to apply for loans with bad credit score: Get money in hands this way

At some point in our lives, we need financial funding for various reason. And you must have heard that banks are always guiding you to maintain a good credit score. This one indicator plays a major role in what happens to your loan request. Your credit score helps you determine two things. Firstly, considering that lending money comes with a list of risks, your credit score helps lenders in understanding how reliable and unreliable a customer you are in regard to repayment of debt. Secondly the credit ratings also supports in determining the type of loan that is suitable for you. 

What is credit score? 

A credit score can be referred as a 3-digit number between 300 and 900 which defines the credit merit of a credit card holder or of an individual who has taken a loan.

For sanctioning loan in India, the potential lenders adapt the credit scores calculated by CIBIL TransUnion, Experian, Equifax or CRIF High Mark.

CIBIL scores are considered by lenders and it is considered as a benchmark for granting a loan to a borrower. 

Ranjit Punja- Co-founder and CEO, CreditMantri said, "A good credit score is a great asset to have these days. It comes handy in all those situations when you need credit to buy anything that cannot be paid for immediately, like a home, a vehicle or loans to tide over emergencies and unplanned circumstances or even for availing a credit card."

Elaborating this a little bit, Punja explains that a bad credit score often closes options for you to get credit. Even if you manage to get, it will be on a high rate of interest, on a reduced amount or a shorter tenure. This would mean a bigger hole in your pocket. Not to forget any loan or credit card application during this period would lead to hard enquiries on the credit bureaus and thus resulting in an even lesser score. Also, a bad credit score does not have overnight fixes, and it takes time to turn a bad score into a good one.

Among the many other actions that can help you in building your credit score, getting a secured credit card is one. But as the saying goes, the first step in solving a problem is accepting there is one; a bad credit score is problematic, and you should act on improving it.

Here's how you can solve  your bad credit score, as per CreditMantri. 

What is a secured credit card?

Generally, all credit cards are unsecured credit from the issuer's point of view. The only collateral the issuer has is good credit score and his income documents of the borrower. Therefore it is next to impossible to get an unsecured credit card with a bad credit score. Here steps in the secured credit card.

A secured credit card is relatively a recent entry into the financial markets. This means that a borrower can be eligible for a credit card against some security. Most of the times it is a fixed deposit. The credit limit of these cards is rationed against the amount in the fixed deposit, often limiting up to 85%. This card is made available to the individuals with a low credit score as well, as the issuer always holds the guarantee of a fixed deposit.

A secured credit card otherwise functions like a normal credit card, when it comes to repayment, minimum amount due and interest charges on the unpaid amount. On the other hand, the fixed deposit continues to earn interest at the specified rate. In the event of a default on the credit card, the amount held in the FD is liquidated to the extent of default.

Advantages of secured credit card

There are many advantages of going in for a secured credit card. Some of them being

Helps you build your credit score: For all those struggling with a low credit score, going in for a secure credit card makes sense. Once you get a card, be regular with your repayments. This would show you as a creditworthy person and help build a credit score.

Low documentation: As the secured credit cards are issued against a fixed deposit, the need for documentation is lesser compared to a normal credit card. The proof of income that is normally required is made away here, as you have a fixed deposit as security.

Earns interest on FD: Your fixed deposit remains untouched and earns interest at the specified rate as long as your repayments on the credit card are regular.

Useful for those with no credit score too: Secured credit cards are especially helpful for individuals who are just starting their careers, students etc. As they are yet to open their credit history, getting an unsecured credit card may be out of the question. But a secured credit card comes to their rescue and also helps build up the credit history.

Getting a secured credit card should not be your major concern, however maintaining regularity in repayments is what matters and helps you improve your credit score. So take the first step, check your credit profile and if you find yourself with a low credit score, improve it with a secured credit card.