Most of us will start to worry as soon as we know we need to take out a loan. When this happens in our lives, we forget that lenders’ opinions on credit scores are not all the same.
While having a higher score does mean that a lender will see you as a lower risk than if you have a poor score, lenders do not all go by the same system of calculating credit scores.
The credit score you would need to get payday loans CreditNinja is different from the credit score you would need to get a Mortgage with your bank. That being said, whatever you need to have credit for, you want your score to be as good as it can be.
The higher your score is, the more likely you are to be accepted, this is just a fact. But, what is a good score, and how are they calculated? The truth is, it depends.
There Is No Specific Number
We will start off by saying that there is no specific number you should be working towards. Each lender will seek out different things in their potential borrowers, so you might be perfect for one lender, but not so great for another.
Scores range from 0 to 999, most will consider a good score to be above 880, and average to be from 720. However, different lenders consider different things, and depending on the system used to calculate your score, it can differ.
How Do Credit Scores Get Calculated?
When you apply for a loan, a lender will always look at the information on your credit report, as well as that on your application and any other information that they have on you, especially if you are an existing customer of heirs.
All of this is then used to determine your credit score. Each lender will have a different way to calculate credit score. This is mainly because they will all have access to different information, but each will also have varying criteria for lending as well.
However, typically, the higher that your score is the better a chance you have at being accepted.
Credit reference agencies will calculate a version of your score and how each does this will vary, however, they will all take into account particular factors.
This includes the amount you owe, if you make payments on time, and how often you apply for credit.
How Do You Get A Good Credit Score?
Getting a good credit score can be easy or difficult depending on your situation. It does take patience and time, however.
Here are some ways you can improve your score:
- Build up a credit history. If you have only a little or no history, companies will find it harder to score you, and you will get a lower score as a result.
- Keep your utilization low. This means how much of your limit you use. If you have $3000, and you use $1,500, then your utilization is half, the lower the percentage is, the better.
- Pay off your debts
- Pay your accounts on time in full, this shows lenders you are safe and financially responsible.
- Only borrow what you can afford to borrow.
- Always keep up with any payments.
- Limit how many applications you make. Do not apply to too many in a short time frame as lenders will see you as being too reliant on credit.
Know Where You Fall
There is really no minimum score you should have to be eligible for a personal loan. Some other loan types may be more specific, but personal loans can vary a lot.
That being said, if your score is rated as being poor, or very poor, then you have a very slim chance of getting a loan as you will be seen as unreliable.
There are three large credit agencies, but FICO scores are the most common. You will usually need a score of at least 610 to qualify, but this is not true for every lender.
With the FICO score, there are 5 categories, each will dictate your likelihood of getting a loan. Check where you fall on the FICO credit score.
| Poor | 580 and below | It is hard to apply for a loan with a credit score like this. If you do get a loan, the interest rate will be very high. |
| Fair | 580 – 669 | You have a better chance of getting a lower interest rate, but your loan amounts may still be low. |
| Good | 670 – 739 | If you have good credit you will get a lower rate and higher amounts. |
| Very Good | 740-799 | With this kind of credit you will get the lowest interest rates and higher loan amounts. |
| Exceptional | 800 and above | With exceptional credit you will get the lowest interest rates and the lenders highest amounts for loans. |
The FICO score is the most common system used in the U.S. but some lenders still use others. Nonetheless, most are similarly calculated, and these numbers are a good guideline to go off of.
Bad Credit
If you do happen to have bad credit, then the minimum that is required for a personal loan will depend heavily on the lender. Each lender will have different requirements before you apply.
Some may accept you with a poor credit score, but you can expect to pay more in fees and interest.
If you are struggling with credit and increasing it, and you need a loan, you can get loans for bad credit with flexible requirements. The lenders may focus your financial history less on credit scores and more on other factors.
There are many things you will want to consider, if your score is lower, then your interest rate will be higher, and your terms will be less flexible. You should make sure that the terms of the loan are ideal for you and that you can pay the loan back without doing any more financial damage to yourself.