A low credit score has a number of drawbacks, including the risk that your loan application will be rejected right away, that you will have to wait longer than normal, that additional paperwork will be required, and that you will be charged a higher interest rate on your loan. A low Credit score affects you in a variety of ways, whether you realise it or not. Your CIBIL score may be low as a result of bad repayment habits or a credit report issue that you are unaware of. As a result, it’s a good idea to check your credit score and report on a regular basis to make sure there are no errors.
Here is a list of some common disadvantages that you can face due to a low credit score
Rejection on your Loan Application
When you apply for a loan, your CIBIL Score is one of the first and most important factors considered. Of course, additional criteria such as your salary, prior debts you’re paying off, and your work situation are taken into account when applying for a Home Loan. However, when applying for a personal loan or a credit card, your credit score is one of the most important elements in determining whether or not your loan application will be approved. Receiving a personal loan rejection can be difficult, as personal loans are typically sought in times of financial emergency. Receiving a loan rejection during a difficult moment can be painful. Receiving a credit card rejection, on the other hand, will drop your CIBIL score even further. Your CIBIL Score, on the other hand, is seen as a direct indicator of your creditworthiness. It also displays your likelihood of repaying the loan. As a result, no lender will be willing to lend to someone who has a poor credit history.
High Interest Rates
While some banks may simply refuse to lend to you because of your poor CIBIL score, others may be willing to do so. They may agree to lend at a higher rate of interest to compensate for the higher risk of lending to you. On the other hand, if you have a good CIBIL score, you are more likely to receive a low interest rate on your loan application as well as immediate acceptance.
Large Repayment Amounts
While some lenders may offer you a loan with a higher interest rate, others may offer you a loan with less favourable terms, such as higher monthly payments or lower loan amounts allowed. For example, the loan amount authorised may be much less than what you originally requested or applied for, or a shorter loan term may be allowed. Higher EMIs would come from a shorter loan term with the same loan amount. Aside from that, it’s possible that your loan will be authorised with a higher down payment.
These are some of the most significant drawbacks of having a low CIBIL score. On the other hand, you can look out for any errors by simply making a CIBIL score login by which you can regularly monitor your credit score and report. Apart from these, there are a number of other drawbacks that may differ from one lender to the next. To avoid such disadvantages, it is critical to maintain a decent CIBIL score before applying for a loan or credit card.