May 15, 2019 7:58 am Written by

How Good a Credit Score Do I Need to Get a Loan?

How Good a Credit Score Do I Need to Get a Loan?

This is a question that many people ask as they are in need of a loan, and knowing loans are based on affordability and credit scores, and they may know they can afford the loan, but they do not know what credit score may be required to be approved for the loan.

As borrowers we are told:

High credit score = good

Low credit score = bad

High credit score = low interest rates

Low credit score = high interest rates

In attempting to answer the above question, how high or good a credit score do I need to get approved for a loan; the answer to this question, and sorry to be vague, is the credit score required to be approved for a loan can vary due to a few factors.

And keep in mind, you can get a loan even with bad credit, there are bad credit loans available.

Some of these factors are:

* The type of loan you are seeking

* How much of a loan are you requiring

* The lender themselves

Type of Loan: The type of loan you are seeking affects what the lender may require as a credit score for the loan.

Secured loans such as mortgages, or other secured loans that may require a deposit, may allow a lower credit score, then an unsecured loan, such as a personal loan, or a credit card.

Unsecured loans are a higher risk to the lender, so they want borrowers to have good credit and a good credit score.

Loans such as guarantor loans, are approved based on affordability and also the fact there is a guarantor for the loan.

Credit scoring on the borrower is not a part of the approval process.

How Much Are You Borrowing, and For How Long: Loans that have a shorter term, say a loan for 12 months and not 24 months, a lender may accept a lower credit score. The shorter the term of the loan, the less exposure the lender has.

Larger unsecured loans may require a higher credit score, in part due to the amount of money being borrowed, and also larger loans tend to have longer terms of repayment.

The Lender Themselves: Banks and lenders have different credit scores they accept to approve a loan. Many lenders tier the scoring model for various loans, as to what the interest rates may be.

Certain loans may offer one interest rate for someone whose credit score is 650, and another interest rate for someone whose credit score is 625.

Not all lenders use the same model.

So What is a Good Credit Score?

With the different credit bureaus, each may assign a different credit score, and each may have a different top score.

With the credit bureau Experian, a good credit score is 700, with 800 being excellent.

But again, this does not mean someone with an Experian score of 650 would not be approved for a loan.

Equifax states a credit score of 660 or above is good.

Again, different numbers and systems.

Call Credit has different numbers as well, and 627 is their magic number to classified as having excellent credit.

So what should you do if you want a loan, and are concerned about your credit score?

Know What Makes Up Your Credit Score

Credit scores are made up of five factors:

* Payment history 35%

* Balances how much you owe: 30%

* Length of credit history, how long you have been credit active 15%

* Types of accounts you have 10%

* New credit, how often do you apply for new credit 10%

Armed with this information and knowledge, you know what you can do to improve your credit score…you want me to explain….OK.

Start at The Beginning: Get a Copy of Your Credit History and Score

You can get a copy of your credit report for free, review it, and look for any errors and omissions. Having these corrected is a start.

Next, close any unused accounts, but not your oldest accounts. Remember, length of credit history is one factor used in determining your credit score.

Get on the electoral roll. Creditors use this to verify you are who you say, and your address.

Don’t apply for a lot of credit, inquiries or “footprints” can reduce your credit score.

Don’t carry large balances on credit cards.

And lastly as common sense would dictate, pay your bills on time.

It is always a good idea to know your credit score prior to applying for a loan, this will help you know as to if you will be approved, or possibly have the loan conditioned, such as for a lower loan amount, different term, or require a guarantor.

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