Personal Loan With a Bad Credit Score
When you apply for a personal loan, your credit score is one of the most critical factors that lenders look into. The level of your credit score will allow you to get either better loan offers or rejected ones. Here’s what you need to know about Personal Loan With a Bad Credit Score.
Credit scores are a shared method that financial organizations use to determine people’s ability to deal with their financial responsibilities. As you pay your bills and loan debts on time, your credit score gets higher. But if you miss payments it gets lower.
Credit Score Level You Should Have
Typically, lenders do not approve any personal loan applications if the applicant has a credit score that is under the level they would consider average or good. This would tell them that the applicant is likely to fail to pay their monthly repayments on time. Of course, if they cannot get the repayment, it would not be a good investment to give a loan.
Although it can vary based on each individual case, most lenders consider credit scores that are 680 or more as good scores. If your credit score is higher than this level, you can assume that you can pass the initial requirement for the credit score. But of course, depending on the interest rates and loan amount you want, you may need a higher score too.
Even if you have a credit score that can be considered good, Lenders will also look into your history of repayments. Your past credit card bill payments, the number of credit cards you have, other active loans you still need to pay, past loan payments that you made on time, and significant financial plans you are currently in. Normally all these affect your credit score already. But lenders still look into these factors to get a better idea about you.
Factors other than being With a Bad Credit Score
Although you do not have a clearly higher credit score than you need, you may still have a chance to get approved for a personal loan.
First of all, another important factor that lenders look into is your DTI, debt-to-income ratio. This is basically the ratio that your monthly total payments have against your monthly income. Even though you have a lot of debts on paper, if you can prove that you have enough income to handle these debts easily, lenders can determine that you can get more loans before experiencing any problem with payments. In general, if your debt-to-income ratio is under 40% it can be considered acceptable. Of course, lower ratio numbers would be better.
Another point worth mentioning is that some lenders also look into your education history and your career. Many unexpected factors, like the school you went to or the grade point average you had, can affect your chances to get a loan.
Your current career and how long have you been employed are also important. This is understandable as they would want to sure that you will have an income to repay. So, if your job is a well-paying and stable one, or it has a promising future, you would get a loan easier.
What if you have Bad or No Credit Score
As you can imagine, if your credit score is lower than the average level we mentioned, your chances of getting a personal loan are not quite bright. Still, it is not impossible. You may consider a few ways that can make lenders accept your lower score.
One way you can consider for getting a loan with a bad credit score is to have a co-signer on your personal loan application. When you bring a co-signer to a loan application, and if they have a better credit score their score would help your application. As they will accept the responsibility if you fail with repayments. Although finding someone that will be willing to get into such a risk might be difficult, it increases your chances and even allows you to get better interest rates.
Another way you may consider is to apply for a secured personal loan. Secured loans are the ones that you show a property or a vehicle you own as collateral. If you fail to repay your loan, the lender will get your collateral. Although it is a risk, it helps you to get a loan with a bad credit score.
We can also recommend looking for some personal loan offers from your local banks and credit unions. Such lenders usually have lower requirements to meet and they can be better options for smaller amounts.
Finally, before you apply for a loan with a bad credit score, you can try to improve your score by doing a few things. Although it would take some time, paying off your old loan debts, cleaning your unpaid bills, and saving up some money in your account before you apply for a loan can increase your credit score and your chances to get approval.