HOW DOES MY CREDIT SCORE AFFECT MY ABILITY TO GET A PERSONAL LOAN?
Personal loans can be very beneficial when you need to make a big purchase. Maybe you are ready to consolidate your high-interest credit cards, or maybe you have an unexpected expense without the cash available to cover it. Depending on your situation, a personal loan can be your way out of financial trouble.
Personal loans are usually unsecured credit. That means you get the loan without putting up any collateral. Your credit score has a major impact on the rates of the loan, and even your ability to qualify. Those with higher credit scores are going to be looking at the most competitive rates.
Check Your Credit Score
Be informed before you apply for a personal loan. You don’t want any surprises when you are applying for your loan. It’s easier than ever to check your credit score for free. Many credit cards offer credit scores as a complementary service. Some websites that offer this service as well.
You should also request your full credit report directly from the three credit reporting companies. They will let you do this for free once a year. Check everything and be sure there are no errors that could be contributing to a lower score. If you spot an error, you will need to contact them to correct it.
Why Do Credit Scores Matter?
Lenders see borrowers with high credit scores as being less risky. Credit scores range from 300 to 850. Only 1 percent of borrowers have a credit score at 800 or above. These are the lucky borrowers who will find the most competitive rates.
On the other side, borrowers with rates at 579 or less are considered to be at a higher risk of faulting on their loans. These borrowers are going to have a harder time securing credit and when they do get a loan, they will find their rates are going to be at the higher end.
How Do Credit Scores Affect Personal Loans?
Lenders of personal loans typically have a minimum credit score requirement. For a personal loan, it’s usually around 580 to 600. There are no set rules here, and you need to check with individual lenders to find out their qualifying scores.
Lenders then adjust their rates starting at the highest rates for borrowers that are just above the minimum. Even a 20 point credit score improvement can get you a better rate, saving a lot of money on interest.
How to Improve Your Score For Better Rates
- Reduce your amount of debt. Your credit utilization rate is the amount of debt you have versus the amount of credit available. When this gets to be above 30 percent, your credit scores will begin to drop.
- Pay your bills on time. This is a big factor in your score.
- Don’t close unused credit cards. This will negatively affect your credit utilization rate.
- Don’t take out new credit cards. Lenders may consider borrowers risky if they have taken out a lot of credit cards in a short amount of time.
Personal loans can help you manage your expenses and your debt. When used responsibly, you may find they are your best option for your current situation.