Brainy Loans
What is the credit score requirement for personal loans?
In most cases, personal loans are an unsecured lump sum of money that is treated like any other loan and paid back over time in installments ranging from 1 to 7 years.
Due to unsecured loans not requiring collateral lenders usually approve the borrowers based on their financial situation such as income, credit score, and personal factors as such. You are able to get a personal loan with all sorts of credits but to increase your pool of lenders or your offer it is recommended to get your credit score as high as possible.
The higher the credit score, the better your loan.
Most lenders are looking for borrowers that have a longer and better track record of repaying their debts. This helps lenders determine borrowers that make smart borrowing choices and allows lenders to give more favorable terms to those borrowers.
Even though the credit score model might not be ideal it’s a good way to evaluate individuals borrowing history, individuals with a higher credit score are viewed as less risky by lenders, and those with lower credit scores would be considered higher credit scores.
If your credit score is lower you can still get approved for a personal loan with most lenders, but you might not have the most favorable terms. It always recommends boosting your credit score as much as possible before applying for any loan giving you the upper hand.
Poor Credit | 300-579 |
Fair | 580-669 |
Good | 670-739 |
Very Good | 740-799 |
Excellent | 800-850 |
The process of calculating your credit score
- Payment History will be about 35% of your credit score this is usually determined by how many on-time payments you made if you were late on your payments if there was a time you were overdue and everything regarding your making payments.
- Your debt will be 30% of your credit score is calculated by comparing how much you own on your accounts vs how much credit you have available.
- Credit history is 15% of your credit score and it’s calculated by how long you have had your accounts, so the longer you had your credit accounts the better your track record is to the lender.
- Types of credit will be around 10% you have such as credit cards, car loans, mortgages, and such.
- The new credit will be 10% of your credit score and it will consider things such as your recent credit activities like credit checks, loans application, etc.
Credit score plays a crucial role in qualifying you for a personal loan but it’s not the only factor that lenders consider when approving you for a personal loan. Other factors that some lenders will also consider are your income, other debts, employment history, DTI, and similar personal factors to determine your approval.
Before applying for a personal loan I do recommend boosting your credit score by paying down your existing debt, avoiding opening new credit accounts, disputing any eros on your report, and making on-time payments.
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