Taking out a personal loan can be quite a huge move for people. It can almost be like a financial life preserver, as you get the needed funds to cover any debts or expenses that you need to pay for. Personal loans can also be used for other purposes, whether it’s upgrading the car or getting home improvement.
However, before you really obtain a personal loan, there are a number of requirements that you have to meet first. One of the biggest things that will make or break a borrower’s application is the credit score.
If you want to understand more about credit scores and why it’s such a needed qualification to get a personal loan, keep reading.
What Is a Credit Score?
A credit score is a number that reflects how credit-worthy a borrower is. You usually get a number from 300-850 based on a certain scoring system. People with a credit score of 670 and above are considered to have good to excellent credit, making them attractive to lenders.
Do take note that lenders may use different credit scoring models, which can shift your numbers around a little. FICO credit scores are the standard, but some utilize VantageScore or curate their own scoring systems with the data they receive.
Why Is a Credit Score Important?
Going back to the definition, a credit score reflects the creditworthiness of a borrower. Many lenders tend to set this as a qualification. Borrowers with fair or bad credit scores may fail to pay back the personal loan that they take out, so they are often left up in the air.
Credit scores also help in determining what interest rate a borrower would get from a lender. Granted, having a high credit score doesn’t guarantee that you will get a low interest rate, but it increases the chances of the rates being lower than if you had fair or bad credit scores.
Can You Borrow with a Low Credit Score?
Those with a credit score of 300-600 would still be able to take out personal loans, though it can be tough to put in applications. Look for a considerate lender who would be able to look past your credit score and provide installment loans for them.
Do keep in mind that the interest rates that you will face will be higher. In addition to that, direct loan applications may affect your credit score a little bit. Try to look for pre-qualifications before you send in an application to understand your chances of getting a personal loan approved.
What Are the Other Qualifications for Personal Loans?
Identification and documents are all standard requirements for a personal loan, but there are other qualifications that hold the same value to lenders as credit score. Credit history, for example, is great data that allows lenders to see how punctual your payments are.
A borrower’s debt-to-income ratio is also quite important to assess, as any other financial obligations can hinder you from making a loan payment. It’s best that borrowers have low debt and steady cash flow in order to qualify for the personal loan.
Understanding how a credit score is a needed qualification for personal loans alongside other requirements can be a great insight for preparing your loan application. If you aren’t too confident with your current score, there are ways to build up your credit and improve before you send in an application.
Searching for personal loans for bad credit in Memphis, TN? Magnolia Finance recognizes the time-sensitive need for help, offering personal loans that you can repay in installments. Give us a call today!