What Credit Score Do You Need for a Personal Loan?
- August 14, 2018
- Posted by: Jeff Gitlen
- Category: Personal Loans
Before submitting applications for personal loans online or in person, you need to know a few facts. Randomly applying for a loan could negatively impact your credit score if it spurs on a hard credit pull, and you may not even qualify for the loan in the first place. Therefore, you should learn about what you need to know about qualifying for a loan before taking action.
The FICO (Fair Isaac Corporation) credit score ranges from 300 to 850. Experts calculate these numbers using a formula consisting of such variables as credit length, balance owed, payment history, the number of open accounts, and so on. The lender will first review your credit score to determine if you are creditworthy (in other words, they want to know if you are a low risk).
- 300 to 349 (no credit) – A credit score in this range indicates no or little credit. Personal loans are available for people with a no-credit status, but the terms of the loan are usually restrictive and the interest rate is high.
- 350 to 650 (poor credit) – This range signifies a damaged credit history potentially caused by bankruptcy, excessive defaults, and so on. Securing a personal loan with a credit score in this range is challenging. Usually, lenders recommend that you repair your credit first and then apply for a loan. Again, a personal loan would have unfavorable terms and high interest.
- 651 to 690 (moderate credit) – This range also shows a damaged credit history, often caused by things like an excessive number of late payments to multiple lenders or loan defaults. With the primary issue being late payments, it is harder to get a personal loan with good terms.
- 691 to 720 (good credit) – With a good credit score falling in this range, you are more likely to secure a personal loan with a decent interest rate.
- 721 to 850 (excellent credit) – With excellent credit such as this one, you are typically considered low risk, and therefore, you are more likely to be able to borrow money while getting a lower than average interest rate.
There isn't an exact credit score needed for a personal loan, but the higher your score, the easier it is for you to get a personal loan with low interest. Of all the criteria considered by lenders for a personal loan, credit score is one of the most critical.
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Can You Apply for a Personal Loan with a Cosigner?
One way to ensure you can get a personal loan is to rely on the help of a cosigner. Not all personal loan lenders accept co-signers, but for those that do, the individual typically needs to have excellent credit. Like many other loan applications, tacking on a reliable cosigner is a way to increase the likelihood of a successful application. Along with excellent credit, the co-signer must have a steady income. Keep in mind that cosigners open themselves up to the risk of damaged credit, so that risk should be considered before sealing the deal.
Can You Get a Personal Loan with Poor Credit?
It is possible to be approved for a personal loan while having poor credit, but there are consequences and risks to keep in mind. There are lenders out there specializing in bad credit loans, and most of them are not reputable banks and credit unions. That means you need to be careful when choosing a lender. The goal is to find one that is transparent regarding rates and fees but also willing to be flexible with terms and willing to work with your past credit issues. That being said, if you find a lender all too happy to send a loan your way, that could be a red flag for a scam.
With that in mind, predatory lenders exist, and you should be on the lookout if you have bad credit and need a loan. These lenders use scams and strong enticements to get people with bad credit to take out loans. Borrowers end up paying horrendously high interest and become trapped in a cycle of debt. Many refer to personal loans in this context as payday loans.
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