What Credit Score Is Needed for a Personal Loan?
This indicator determines what lending services you can use, and how much you pay in interest. Both FICO and VantageScore use a scale from 300 to 850. Personal Loans And Scores  These loans do not require collateral. Usually, the funds may be used at the borrower's discretion. Common goals include covering medical expenses, consolidation of other debts, and financing of special events. The typical range is between $1,000 and $10,000. Every lender has its own view of an acceptable score. Advertisement  If your total is too low, your application will be rejected, or the interest will be high. Lenders interpret poor scores as an inability to meet financial obligations. This impression is not always correct, as the calculation may be distorted. On average, every 5th American has a wrong status due to mistakes on their official reports. The best credit repair agencies of 2021 are part of a large industry. They help consumers improve their scores through disputes. Every year, millions of US citizens use these services. First, check your score for free. You can do this on My FICO or apps like Credit Sesame. Then, collect the reports and check them. If there are any errors, a good credit repair company will fix them for you. This will give your score an instant boost. The requirements vary. The Experian agency recommends staying within the 670-739 range for better results. The higher  the better, but lenders do not price products for the best category ("excellent"). This means 800 points unlock the best conditions possible. According to other sources, the minimum requirement ranges between 610 and 640. Benefits of a High Score  All lenders check the indicators to assess applicants. Your total is a universal barometer of reliability. It is based on borrowing records stored by Experian, Equifax, and TransUnion. Both assessments (FICO and VantageScore) consider your prior payments, utilization of revolving credit, the total amount owed, and other factors. When the score is high, more institutions are willing to accept you, and they offer more attractive conditions (interest and fees). All in all, borrowing is cheaper for those whose status is favorable. They have a wider range of options. Such applicants, if they are accepted, are charged more to offset the risk of default. The position of financial institutions is understandable. Now, let's dissect the factors affecting your score. Factor 1. Previous Payments  The way you handled debts in the past affects the largest share of FICO and VantageScore  35% and 40%, respectively. Positive status requires making payments on time under the borrowing agreement. Even one missed payment can cause a drop in the score. Factor 2. Limits Vs Balances  Your credit cards define your utilization ratio. It shows how much of your available credit is in use. The higher it is  the less attractive you are for new lenders. To find the ratio, divide your total balances by total limits. Suppose four cards give you access to $10,000. An outstanding balance of $4,000 means you are using 40% of the funds. This is more than experts recommend. Some sources suggest the best results start from 10% and under. This factor determines a third of your FICO score. Factor 3. Age of Your Records  The more experience you have as a borrower  the better the score. As long as you make all payments on time and avoid overuse, the length works in your favor. The assessment models consider the oldest and newest accounts and the average age of them all. This affects 15% of the FICO evaluation. Factor 4. Mix of Credit  Consumers with excellent scores usually have experience with various forms of borrowing. For example, your history may include student loans, car loans, mortgages, credit cards, etc. This factor defines 10% of your total. Factor 5. New Accounts  The remaining 10% depends on recently opened accounts and the number of hard inquiries. The latter are special entries on your report. They appear whenever a financial institution checks the records. Too many new accounts and applications hurt your score. Other Possible Factors  The score is important, but it is not the only requirement. Your income and employment status may also affect eligibility. The institution may require the latest pay stubs, your tax return, or other documents that prove creditworthiness. Savings and other sources of income are also considered. Personal loans are provided to applicants who receive income from investments, a pension, or disability compensation. Prevention Is Better Than Cure  Before applying for any loan, check your score and borrowing history. Go to www.annualcreditreport.com to download the information from all three reporting agencies  Equifax, Experian, and TransUnion. This is crucial, as the bureaus compile reports independently. They do not share information, and lenders can liaise with any of the agencies. Experian recommends doing this well in advance  between 6 months and a year before applying. Raising the score is feasible, but it takes time. Bumping a "fair" score to "good" is easier than jumping from "poor" to "very good". Consumers who fail to get personal loans may turn to other, more accessible forms of lending. For example, payday lenders are notorious for accepting applicants with a poor background. The main downside is the cost. These loans have outrageous APRs  hundreds of percent per year! This is a short-term solution until your next payday. In reality, this is not true for all borrowers. Therefore, think twice. Instead of opting for loans with higher rates, work on your score. Make payments on time, work on your credit utilization, etc. The tips in our article will help you achieve the necessary result. This will not happen overnight, but it will help you avoid the vicious debt cycle. (Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)