Securing loans has been unavoidable lately due to situation of the global market and global economy. Thus, it become compulsory at certain point in term for individuals or groups to apply for specific loan type. But there is still some obstacle faced by intended borrower when it comes to securing loan from financial institutions.
Such problem is the issue of their credit score on their credit card or report. Have you ever been asked for your credit score by a lender and get disqualified for not able to provide it? This article will expose you to things you need to know about credit score, personal loan and the minimum credit score required for securing a personal loan.
What is a Credit Score?
A Credit Score is a guide to creditworthiness of the borrower and is calculated by the information on a credit card. The information includes how much an individual is owning and whether or not they pay their bills on time. In the United States of America, the common credit score is placed on a scale known as the FICO score. The FICO score comprises of five major elements, namely;
. 35% – Payment history: This depicts the number of times the individual pays their bills. The more delinquent he payment history is, the worse it is considered.
.30% – Total amount an individual owes: This element includes the credit card balances, mortgages, car loans, any outstanding bills, court judgements, and any other debts.
.15% – Length of a person’s credit history: It states whether or not the person is an active account owner who has been making transactions.
.10% – Mix of credit types: It includes mortgages, car loans, and credit loans. It combines all kind of credit type and place it on ana average.
. 10% – New credit: It shows what credit type the individual has recently opted for.
What you need to qualify for personal loan
Credit score requirement for personal loans vary across lenders. Many financial institutions give preference to borrowers with good or excellent credit scores (i.e., 690 FICO and above) while others accept borrowers with bad credit (i.e., those with score below 630)
The minimum credit score to qualify for a personal loan typically ranges from 610 to 640, according to awareness dataset of NerdWallet users who pre-qualified for personal loans. However, just because you meet a lenders minimum credit score requirement doesn’t always mean you will qualify for a loan.
Lenders have a range of criteria they consider on application. Some look at alternative data, like where you went to college and what field you work in. Others look mostly at your credit report and history, long with your income debts.
Credit history: Lenders like to see a long credit history on a loan application. A lender may say it requires a minimum of four or five years of credit history, but longer is.
typically better. More accounts throughout your credit history shows a lender how diligently you have made payments
.Debt to income ratio: Lenders seek borrowers who make enough money to meet their current monthly financial obligations, plus loan payments. Many use your debt -income ratio to see whether another loan would over reextend your finances.
. Free cash flow: Your debt-income ratio doesn’t account for expenses, lenders call this “free cash flow”, and the more of it you have the more confident s lender may feel approving your application.
Personal loans for fair or bad credit
Through lenders consider a few factors on a loan application, your credit score is often given a lot of weight. Borrowers with fair or bad credit often qualify for high rates, which can be up to, 35%. A low credit score could also be the reason a lender approves you for a low loan amount.
The causes of low or fair score could be as a result of inconsistencies in your credit history. Loan Application can cause temporary dip in your score pre-qualifying can show you potential loan offers that wouldn’t hurt your credit score.
Personal loan calculator is used to learn how much your monthly payments could be, based on your loan amount, term and credit score. Debt consolidation calculator is used to find out how much consolidating your debt could save you. Lastly, Debt-to-income calculator is employed in the determination of your debt-to-income ratio and learn how lenders use it.