If you have ever applied for a personal loan, you would agree that a credit score is one of the biggest influencers in approval. After all, your credit score demonstrates how responsible you are when it comes to money. It also tells whether you are able to pay back the amount. I remember when I signed up for Spectrum packages with the intention of doing online business. It was very hard in the start but it worked out for me as I made it across with good profits. So, your application only is approved if your credit score is good – learned it the hard way.
A personal loan is a closed-end credit product. It’s an unsecured loan that’s granted on your ability to repay it.
What’s a Perfect Credit Score?
850 is known as the perfect credit score. If your score is higher than this, you might be a perfect candidate in the eyes of lenders. A perfect score means you will get a low-interest rate because the lender trusts you are capable of repaying the loan. The only problem is not many people score above 850.
Normally, a credit score ranges from 300 to 850 depending on the past payment history, amount of debt and how long you have had credit.
Importance of Credit Score for a Loan
Now let’s get to the real deal. What’s the significance of a credit score for a personal loan? Some experts say that your credit score does not really affect the odds of approval rather, it affects how much interest you will pay on the loan.
If your credit score is 700, you might get approved for a loan with a 5 percent interest rate. However, if it’s 650, then you might end up paying 8.5 percent interest rate. The cost would add up depending on the terms of the loan.
The borrowers with a solid credit report are considered less risky by lenders. They won’t fall behind on payments and there is less risk that they will stop making payments. If your score is 800 or above, a lender would not just offer you a loan on a lower interest rate but he might be willing to offer you a larger amount too.
If you are out in the market to get a personal loan, your score can get you an affordable monthly payment. There are some experts who say anyone with a score of less than 600 is not likely to get approved for a personal loan. If your score lies within the range of 600 to 700, you will get an interest rate between 15 and 30 percent. The score requirement and interest rates, of course, vary depending on the lender. You will get the best rate if your score is between 720 and 850. An interest rate between 5 to 10 percent is a great deal.
Personal Loan with a Bad Credit Score
We all have questioned this. The truth is it’s difficult. Generally, lenders are reluctant to lend to someone with a bad score. What’s a bad score you ask? A score below 579 is considered bad. It’s a high-risk score. Even if you manage to get a loan with this score, you will have to pay a high-interest rate. A bad credit score doesn’t just affect your ability to get a personal loan, it affects other things too such as your insurance rate.
Tips to Boost Your Credit Score
It’s pretty clear that without a good credit score, you are not entitled to get a personal loan or a good interest rate. Building a strong score doesn’t happen overnight. A good thing is there are still some things you can do today to make a difference. Those of you who are stuck with a low score, these tips might help you give it a boost:
- Pay your debt in time. Whether you have student loans or a credit card debt, make sure you are paying the minimum payments each month. This will lower your load and build a healthy payment history.
- Some people don’t have a good credit score because they have no credit history. A good way to start building your history is to get a credit card. Show your bank that you are responsible when it comes to paying back.
- Ok, this a quick way of boosting your history. Ask someone with good credit if you can become an authorized user on their card. It will give a quick boost to your score without getting a loan or applying for a credit card.
The Bottom Line
A credit score can make or break your chance of getting a personal loan. Regardless of the purpose of applying for the loan (whether it’s for buying CFD Stocks, starting a business or meeting some emergency need), review your credit report as well as your score. Make a list of potential lenders who would be willing to lend depending on your score. Compare their credit requirements. Maybe use one of the tips shared above to improve your score immediately. Even if you don’t need a loan today, you still shouldn’t neglect your score. You never know when you need one so don’t let a bad or average score ruin your chances.