Having money in abundance is a luxury. Having it in just the right amount is a comfort. But not having it enough is a financial blunder. It is a medium to satisfy all our necessities. And when those necessities get dearer, we need hard cash, almost instantly. Why would someone lend you his hard-earned wealth if he suspects you won’t be able to repay it? So, in this world run by money, it is imperative to have a great credit worth or as we say, credit score.
What is a Credit Score?
It is a score that helps the lender to determine your credit-worthiness before he clears your loan application. It is a combination of various factors like your income and credit history. The most famed credit score is the FICO Score, set by the Fair Isaac Corporation. As per a report by FICO, 90% of the lenders make use of this score which ranges between 300-850.
There are other companies too that have created a similar rating system like VantageScore, TransRisk, etc., but FICO is the market leader.
Let’s take an idea how all these companies segregate the borrowers into different levels based on credit score:
· Below 600
It is difficult to find a lender if you have a credit score below 600. Even if you find one, he’ll charge you an extremely high rate of interest, probably 30% or more for the amount of risk involved due to such low credit status.
· Between 600-700
Having a credit score in this range is fine and it’ll be easy to find a lender offering terms and conditions you prefer. Closer your credit score to the upper range of this category, lower will be the rate of interest on your loan.
· Above 700
To have a credit score of more than 700, you would have taken many wise financial decisions all your life. And it’s time to reap the perks attached to this credit status. Best lenders to choose from with the lowest possible interest rate options are waiting for you ahead.
Impact of credit score on your personal loan
It all comes down to one thing: ‘your credit score’ when a lender is contemplating to sanction your loan amount. So much so that he charges differential interest rate from different borrowers based solely upon their credit-worthiness.
A borrower with a credit score of less than 640 is considered a risky bet by the lender and is, hence, charged a higher rate of interest for his loan. Lender might impose other terms such as a short repayment period or a co-signer, in case the score is extremely low. Conversely, a credit score higher of 700 means a financially stable status and would thus have easier loan repayment options along with a lower rate of interest.
Credit Score required to get a Personal Loan
Though there is no hard and fast rule to know how much credit score is best to obtain a personal loan, yet a score of 640 or higher is considered just okay. And for the lowest range, many companies will probably reject your loan application if the score is below 550.
How can you improve your Credit Score
Now after knowing how important a credit score is for our financial health, the first thing that we all want to do is improve our credit score and maintain it there forever. Some simple changes in our financial habits can help us making our not-so-good score good or maybe even great.
1. Minimizing your credit utilization is the fastest way to bring your credit score up the charts. It is the limit from your credit card that you have exhausted against the total permissible limit.
2. Upping your credit line is also an effective way to increase your credit score. All you have to do is contact your credit card company and inquire about any increased credit limit. This will stretch your credit limit by automatically decreasing your credit utilization limit.
3. Paying your dues or bills on time, especially those of credit card. To see its impact, it takes six months of diligent timely payments. One of the companies that can help you is Fortune Credit Payday Loan, you check it out if in need of emergency funds.
4. Closing a credit card account even if it is not in usage anymore is never a good decision when it comes to credit score. It will put your debt burden just on a single existing credit card, thereby, decreasing your credit utilization. Had both ben operative, the credit utilization would have been divided into both the accounts, thereby, keeping your score much better.
How can you secure a personal loan with bad credit?
Improving a credit score may take time and sometimes, time is premium. We need cash immediately. And a low credit score doesn’t mean no personal loan. You still have ways to get the funds.
· Find a co-signer
A co-signer is a person who signs the loan application along with you. But he should be a person with a good to excellent credit score as the lender will use his credit score for your loan qualification and setting up interest rate. Generally, a co-signer can be your family member or relative as it will be easy to convince him to shoulder your obligation.
· Find a specialized lender
Not a great idea though, but this option can be exercised in case of urgent cash needs. There are lenders who specially provide personal loans to borrowers with bad credit score. And their reward for taking such a big risk is the exorbitant interest rate.
· Borrowing against a collateral
Personal loans are unsecured but you can always obtain them even with a bad credit score if you have are willing to offer a collateral against it like your house.
Good credit score isn’t the only prerequisite to obtain a personal loan. You can have one even with no credit score at all. But then, that deal won’t be that sweet. If not excellent, try maintaining a decent credit score for financial security.
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