How Credit Scores Impact Your Ability To Get a Loan

"How Credit Scores Impact Your Ability To Get a Loan"

When you have bad credit, you’ll find it difficult to get your personal loan applications approved. It can also affect your capacity to pay for car insurance, rent an apartment space, and secure a great service plan for your phone. If luckily you can take out auto loans, student loans, or mortgages, you’ll be given higher interest rates. These are just some of the negative impact of living with a bad credit report.

When you are in dire need of instant cash and you have zero assets to consider as collateral, the best alternative you can try is applying for a personal loan. You can secure personal loans from different financial companies, such as online lenders, banks, and credit unions. You can use the money that you borrowed for any purpose you have in mind, including weddings, home renovation, vacations, or medical procedures. Personal loans are instant cash loans and borrowers need to repay it with fixed amount each month. The loan terms for this type of loan can last for about 2-5 years. They are also considered as unsecured loans since they don’t require any form of collateral. Instead, borrowers are given approval based on their credit history and source of income.

If you are suffering from repeated loan rejections because of your poor credit rate, then try applying for a personal loan. They are easy to obtain and they offer instant cash flow for your emergency financial needs.

Bad Credit: Everything You Need To Know

There are three main credit bureaus: Equifax, Experian, and TransUnion. These institutions gather credit histories by monitoring one’s loan applications, payments, and other financial activities. All three depend on the FICO score – a three-digit number designed by the Fair Isaac Corporation to determine if you are worthy to be given credit and if you have the ability to pay back the loan based on the information on your credit history and other factors. Here’s how the FICO score works:

  • 300-579 = Poor
  • 580-669 = Fair
  • 670-739 = Good
  • 740-799 = Very Good
  • 800-850 = Exceptional

Another scale that’s popularly-used by lenders is the VantageScore credit system. Here’s how it works:

  • 300-599 = Bad
  • 600-649 = Poor
  • 650-699 = Fair
  • 700-749 = Good
  • 750-850 = Excellent

When you apply for a loan, lenders will carry out a credit check to determine your credit history and FICO score. They will look for certain information such as your outstanding debts and payment habits to find help them decide whether or not you are worthy to be given credit. Apart from this, lenders will examine your occupation and income, the amount you are planning to borrow and your suggested loan term. They will also review your credit rating. Before you borrow a no credit check loan, make sure you understand how all of these works.

How Your Credit Score is Calculated

Your credit score can go from 0 – 1,200 but it can vary from different bureaus. Here are the factors that affect the calculation of your score:

  • Debt
  • Spending habits
  • Number of credit applications lodged
  • Kind of credit applied for
  • Defaults on payment

A favorable credit score is around 622 to 725 and a very impressive one ranges from 883 to 1, 200. Any score of less than 600 is dubbed as a weak credit score. This low rating will give lenders the impression that you have irresponsible financial habits and you are a risky borrower.

Effects of Week Credit Score

The most obvious impact of having a weak credit rating is you will likely face rejection from lending companies. However, there are still lenders that are willing to provide loans to those with low credit, it only comes with high-interest rates.

Fixing Your Credit Score

Lucky for you, a credit score isn’t forever – it can still be changed. Though it can’t be done overnight, there are plenty of ways on how you can revamp your credit score, here’s some of them:

  • Pay off your outstanding debts
  • Settle your bills right on schedule
  • Minimize your credit applications
  • Maintain low credit limits on your credit card. For example, if your limit is at $5,000 yet you never managed to use it all up, request your lender to reduce it to $1,000 0r $1,500 instead.
  • Carefully check all information recorded on your credit report to ensure that they are all accurate. The last thing you wanted to have is a basic system error to lower your score.

Even if you can’t change all the bad spending habits you’ve done over the past years in just one night, it’s still a relief that credit score isn’t permanent. Changing your financial habits by settling debt, maintaining timely repayments, and limiting credit applications will all contribute towards increasing your credit score and cleaning your credit report. With this, you can be confident that you’ll get the best deals when applying for same day loans.

About the Author

Lucy has over a decade of experience in finance. She is currently the content curator here at Perfect Payday.

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