Credit score of 0 or -1: What does it mean and can you get a loan or credit card?

A credit score of 750 or higher is usually considered good for approving loan applications, provided the other eligibility criteria are fulfilled. However, some people who have never availed of a loan or are new to credit will see that their credit score is negative or zero. You need not be alarmed about it. It doesn’t mean you will not get a loan. In this article, we will understand when an individual’s credit score can be negative or zero, what it means, and how they can get a loan or a credit card.

What does a credit score of -1 or 0 mean?

If a person has not availed of any loan or credit card, their credit score will reflect as -1. It means that the person has no credit history or no history (NH). If a person is new to credit, their credit score will reflect as 0. It means that the person has recently availed their first loan or credit card, and their credit history is less than six months old.

Credit Information Companies (CICs) like CIBIL need at least six months of an individual’s credit history to assess it and assign them a credit score. For new to credit individuals, as there isn’t sufficient credit history, a credit score of 0 is assigned.

If you are new to credit, and if your credit score is reflecting as zero, don’t worry about it. Just follow good credit practices of making timely EMI or credit card monthly bill payments, maintaining a credit utilisation ratio of 30% or lower, making one credit application at a time, having a good mix of secured and unsecured credit, etc. Over a period of time, you will have a good credit score.

Can an individual with a -1 or 0 credit score get a loan or credit card?

It is very much possible to get a loan or a credit card with a credit score of -1 or 0 in the following ways.

Other eligibility criteria are firmly in favour

A good credit score of 750 and above is only one of the requirements for getting a loan or credit card application approved. For assessing credit applications, banks have other criteria like age, income, profession, career stability, number of years of total experience and with current employer, debt-to-income (DTI) ratio, city of residence, etc.

For loan applicants with a -1 or 0 credit score, the bank will also look at other financial parameters like savings account balance. If a good balance is consistently maintained in the savings account, it will be a plus point. The bank may also check if there are any cheque bounces. No history of cheque bounce is another positive factor. Having an own house, regular filing of ITRs, long standing relationship with the bank, etc., are other positives that increase the chances of loan approval.

Even if your credit score is -1 or 0, and the other eligibility criteria are firmly in favour, the bank may consider approving your loan or credit card application.

Getting a co-applicant or a guarantor

If your credit score is -1 or 0, and if the bank cannot assess your repayment capacity, the bank may ask you to get a co-applicant or a guarantor. A co-applicant applies for the loan alongside the primary borrower. A co-applicant is a co-borrower, and accepts the responsibility of loan repayment and other loan-related obligations. If the co-applicant has a good credit score and income source, it strengthens the case for loan approval.

The other option is to get a guarantor. If the borrower is unable to repay the loan, the guarantor has to pay. So, for the bank, a guarantor is the borrower’s backup. If the guarantor has a good income source, it strengthens the case for the loan approval.

Taking a secured loan or secured credit card

Instead of getting a co-applicant or guarantor, the borrower has the option of going for a secured loan. Banks are more likely to approve secured loans to borrowers with a credit score of -1 or 0, provided the other eligibility criteria are fulfilled.

Secured loans include a home loan, vehicle loan, gold loan, etc. You can get a secured loan against securities like a property, shares, mutual fund units, a fixed deposit, insurance policies, Government securities, etc. The interest rate on secured loans is usually lower than unsecured loans.

Some banks offer secured credit cards against the security of a fixed deposit. The credit limit may range from 75% to 100% of the fixed deposit amount.

If your credit score is -1 or 0, you can start with a secured loan or secured credit card. Use it as a stepping stone to build and maintain a good credit score. Once you have built a good credit score, after six months, you can apply for unsecured loans like personal loans and credit cards, as per need.

A credit score of -1 or 0 cannot stop you from getting a loan or a credit card

Having a credit score of -1 or 0 doesn’t mean you are not creditworthy. It just means that the credit bureau doesn’t have enough of your credit history to assign you an appropriate credit score. Without an appropriate credit score, the bank cannot assess your creditworthiness to decide on your loan or credit card application.

However, even with a -1 or 0 credit score, you have discussed multiple ways of getting a loan or a credit card. With these loans and credit cards, you can build a good credit score over a period of time. Once you have built a good credit score, it opens the doors to getting all types of loans and credit cards, provided you fulfil the eligibility criteria. A good credit score of 750 and above is important for getting the loan application approved. An excellent credit score of 800 and above can help you negotiate with some banks to get a loan on better terms, like a lower interest rate or discount on processing fees.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.