Personal loans can be used for a variety of financial needs. People use them to consolidate credit card debt, pay off medical bills, or even cover large expenses like a home renovation or wedding.
While personal loans can be very useful, are they available to all types of applicants? If you have bad credit ― or no credit history at all ― here’s what you need to know when applying for a loan. What Counts as Bad Credit
Before you can determine whether or not your credit history will affect your ability to get a personal loan, it’s important to look at what really counts as “bad credit” in the first place.
Though not the most recent scoring model, the most widely used one is the FICO Score 8. This score ranges from 300 to 850, and considers factors such as your payment history, credit utilization, account length, and mix of credit accounts.
With the FICO Score 8, a score of 300 to 579 is considered “Poor.” This is the model’s lowest scoring range, and will make it more difficult to get approved for the credit-based products you want. A score between 580 and 669 is considered “Fair” within this model; though this isn’t a “bad” credit score, per se, it will still limit an applicant’s options as far as the amount they want to borrow and at what rate.
Fiona can help match you with loan offers from multiple lenders in just 60 seconds, making it easier and faster to find the right product for your needs.
How to Get a Personal Loan with Bad Credit
If you have poor or even fair credit, you may be wondering whether or not you’ll be able to take out a personal loan. Before you start applying, there are a few steps you can take to improve your chances.
Know where your credit stands: Before you even apply for a new loan, it’s important to know exactly where you stand, credit-wise. Each year, you can request a free copy of your credit report from any of the three credit bureaus.
Once you get your free report, look over it with a fine-toothed comb. Search for any type of errors ― unknown accounts, erroneous late payments, incorrect balances, and the like. If you find an error, contact the creditor and file a dispute with the credit bureau; fixing mistakes can help boost your credit with little effort.
Consider your options: If you have a good relationship with a local bank or member-only credit union, you may have a better chance of approval there if your credit score is low. If you don’t have any banking relationships established, you’ll need to explore alternative lending options.
Shop around for different lenders: Shopping around for a new loan with more than one lender can help you lock in the best possible rate and terms, as well as improve your chances of getting approved. Research multiple online lenders with lower credit score requirements, and even consider a platform like Fiona, which allows you to compare rates from multiple lenders all in place.
Add a co-signer: If your credit score and history are preventing you from getting approved or obtaining the best rate, you may want to consider adding a more creditworthy co-signer, such as a spouse or parent, to improve your chances. Improving Your Credit to Boost Approval Chances
Whether you have bad credit or just want to unlock better loan terms, there are a few tried and true ways to improve your credit score.
Monitor your credit: By keeping a close eye on your credit through a monitoring service, you can quickly spot inaccuracies, fraud, or other items in your report that are negatively affecting your credit.
Manage your accounts: A single late payment can knock you score down by several points, and can follow you for seven whole years. Be sure to always manage your credit accounts responsibly, and even auto-pay if needed to never miss a monthly due.
Keep balances low: Your credit utilization — or the ratio between your balances owed and your total credit limit — plays a large role in your credit score. By paying off credit card debt and keeping your balance low, you can potentially boost your score.
Build up a credit history. If your issue is a lack of credit history, working to build up a good credit score is the key. You may want to open a secured credit card or ask a creditworthy family member to add you as an authorized user on their account; both can help you build a positive history.
There are many reasons for taking out a personal loan, from consolidating debt to covering big expenses. Getting approved for one, and the rate you can obtain, depends on your creditworthiness. Borrowers with bad credit can still take out personal loans, but the options may be limited.
To make sure you can obtain the best personal loan for your needs, follow the tips above to keep good financial habits. And see what offers are available for you today on Fiona.
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