Consider getting a personal loan if you need money to cover expenses or fund a project. Given your credit score, you might be wondering if you even qualify for a personal loan. In the end, this will rely on the lender.
What is a personal loan?
A personal loan is a lump sum of money you can borrow for a range of purposes, such as holidays, home upgrades, and paying off debt. The loan has a fixed interest rate and is often repaid in set monthly installments. Typically, you can borrow anywhere between $1,000 and $100,000.
The majority of personal loans are unsecured, therefore you are not required to put up any security for the loan. The average interest rates on personal loans are typically higher than those on secured loans like mortgages and vehicle loans, and if your credit score is low, they are roughly equal to credit card interest rates.
If you require a personal loan, you should first shop around with other lenders to see which one would provide you with the best loan conditions.
What credit score do you need for a personal loan?
A credit score in the middle 600s is often needed by lenders to get approved for a personal loan, while some businesses will work with clients who have lower credit scores. Your interest rate should be lower the higher your credit score. Look at Insider’s ranking of the top personal loans for those with negative credit if your credit is weak.
It doesn’t necessarily follow that you won’t qualify with another lender if you don’t with one. The minimal credit ratings needed by certain best online personal loan companies are shown in the following samples.
However, lenders consider other factors in addition to your credit score when determining whether to grant you a loan. Along with other financial considerations, lenders will also take your debt-to-income ratio — the proportion of your monthly debt payments to your gross monthly income — and job status into account.
How to improve your credit score if you don’t qualify for a loan
If no lender will give you a loan, you might strive to raise your credit score to boost your chances of getting one. Additionally, getting a better credit score can get you better loan terms.
Use annualcreditreport.com to obtain your credit report from one of the three main credit bureaus. Up to April 20, 2022, you can receive your report once a week without charge. Although your credit score won’t be included in this report, you will see details about your credit and payment history. You can find mistakes and identify areas for improvement while looking over your credit report.
On your credit card statement or online account, you may find your score for free. It is also available through credit reporting companies.
Here are some actions you can do to raise your credit score if lenders have rejected your loan applications due to your poor credit score:
- Get a copy of your credit report and check it out. Check your report for any errors that can be harming your grade. If required, get in touch with the credit bureau to discuss correcting the mistake.
- Keep your credit card balances low. Lenders will see that you can manage your credit well if your credit utilization rate—the proportion of your total credit you’re using—is 30 percent or below.
- Establish a method for timely payment of invoices. Lenders prefer to see consistent and dependable payment histories because they account for a sizable portion of your credit score. To avoid falling behind, set up calendar reminders or recurring payments.
If you can hold off on getting a personal loan until your credit score improves, you might be able to borrow from more lenders and get better terms.
