If you need money to finance a project or pay a bill, consider taking out a personal loan. You may be wondering if you are eligible for a personal loan given your credit score, and it will ultimately depend on the lender.
What is a personal loan?
A personal loan is an amount of money that you can borrow for a variety of reasons, including home renovations, medical bills, debt consolidation, and even vacations. You will repay the loan in fixed monthly installments, and it usually has a fixed interest rate. The amount you can borrow generally ranges from $ 1,000 to $ 100,000.
Most personal loans are unsecured, which means you don’t have to post any collateral against the loan. Average interest rates on personal loans tend to be higher than rates on secured loans like mortgages and auto loans, and roughly comparable to credit card interest rates if your credit score is credit is lower.
If you are in need of a personal loan, you should start by shopping around with different lenders and seeing which lender offers you the best loan terms.
What credit score do you need for a personal loan?
Typically, lenders require a mid-600 credit score to qualify for a personal loan, although some companies lend to borrowers with lower credit scores. The better your credit score, the better your interest rate should be. If your credit is bad, check out the Insider list of the best personal loans for bad credit.
Just because you don’t qualify with one lender doesn’t mean you won’t qualify with another. Here are examples of the minimum credit scores required for some popular online personal lenders.
However, your credit score isn’t the only thing lenders take into account when deciding whether to approve you for a loan. Lenders will also consider your debt-to-income ratio – or how much debt you owe each month compared to your gross monthly income – and your employment status, among other financial factors.
How to improve your credit score if you don’t qualify for a loan
If you are not eligible for a loan from a lender, you can try increasing your credit rating to increase your chances of approval. Plus, improving your credit score can earn you better terms on your loan.
To get your credit report from one of the three major credit bureaus, use annualcreditreport.com. You can get your report for free once a week until April 20, 2022. Although you will not receive your credit score on this report, you will get information about your credit and payment history. By examining your credit report, you can spot errors and determine where you can improve.
You can get your score free of charge on your credit card statement or online account. You can also buy it from a credit reporting agency.
If your credit rating is low and lenders have turned down your loan applications, here are some steps you can take to increase your credit rating:
- Request and review a copy of your credit report. Look for errors in your report that could affect your score. If necessary, contact the credit bureau to discuss correcting the error.
- Keep credit card balances low. Having a credit utilization rate – the percentage of your total credit that you use – of 30% or less will prove to lenders that you can manage your credit well.
- Create a system to pay bills on time. Your payment history is a substantial percentage of your credit score, and lenders like to see stable and reliable payments in the past. Set up calendar reminders or automatic payments so you don’t fall behind.
If you can wait to take out a personal loan until you increase your credit score, you may be eligible to borrow from more lenders and benefit from better rates.