The average FICO credit score in the U.S. is currently 716, according to recent data from FICO. This average has been trending upward since the start of the COVID 19 pandemic and has continued to rise as the economy recovers from the pandemic. With many Americans making fewer purchases at the start of the pandemic, credit card usage went down and credit scores went up. Now that Americans are recovering from the financial effects of COVID, credit scores continue to rise.
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To qualify for a personal loan, borrowers generally need a minimum credit score of 610 to 640. However, your chances of getting a loan with a low interest rate are much higher if you have a "good" or "excellent" credit score of 690 and above.
A personal loan is an unsecured sum of money that you borrow from a bank, credit union or online lender.
Once you receive the loan funds, you begin making monthly payments on the loan, plus interest, over a set repayment period. Personal loans can be used for any purpose but are most commonly used to consolidate debt and refinance credit cards.
Using a personal loan to consolidate debt allows you to combine multiple outstanding debts into one loan. This means you only have to pay one monthly fee with one consistent interest rate, as opposed to dealing with multiple lenders at one time.
Debt consolidation can help borrowers stay on top of their monthly payments. It may save you money in the long run by combining all of your debt under one interest rate. Debt consolidation can also improve your credit score, particularly when you consolidate outstanding credit card debt. Consolidating your credit card debt with a personal loan allows you to lower your credit utilization rate, which improves your credit overall.
While debt consolidation and credit card refinancing are the most common uses of a personal loan, other potential uses include home improvement, major purchases, medical bills, wedding expenses, etc.
Taking out a loan of any kind will have a slight immediate negative impact on your credit score because you are taking on more debt. However, if you use a personal loan to consolidate debt or refinance, you will likely be able to improve your credit score significantly over time. In addition, making regular on-time payments on your loan will help you improve your credit score over time.
Your credit score is extremely important when it comes to qualifying for a personal loan as well as what interest rate you receive.
When lenders evaluate your loan application, they want to see that you have a history of paying off your debt. Because your credit score is the primary indicator of your debt and repayment history, it is a key factor in determining if you will qualify for a loan and how much interest you will have to pay.
The most commonly used credit score system is FICO, with scores ranging from 300 to 850. Your FICO credit score is determined based on your payment history, total outstanding debt, the length of your credit history, your credit mix and any new debt you've taken on. Payment history is weighed the most heavily in determining your credit score, along with your total outstanding debt.
Generally, borrowers need a credit score of at least 610 to 640 to even qualify for a personal loan. To qualify for a lender's lowest interest rate, borrowers typically need a score of at least 690.
The minimum required credit score for a personal loan depends on the individual lender, so evaluate individual lender requirements before applying. If you struggle with your credit and are looking for a personal loan, there are bad credit personal loans available. These loans tend to have more flexible requirements, and lenders weigh a borrower's entire financial history with less focus on credit scores.
If you are looking to take out a personal loan with less than stellar credit, there are many things to consider. The lower your credit score is, the higher the interest rate on your loan is likely to be. Because a lower credit score means more risk for the lender, the terms of your loan are likely to be less flexible than a borrower with a higher credit score.
Make sure that the loan terms you qualify for will work for you, and that you will be able to comfortably pay back the loan. Borrowers should also look out for predatory lending by verifying a lender's credentials before applying.
When applying for a personal loan, start by checking your credit score and credit reports. Knowing exactly where you stand will help you better determine what rates you will qualify for with any given lender.
Before you choose a lender, shop around for the best personal loan rates available. You should also read the fine print for individual lenders to ensure that you know exactly what you are signing up for and if you will have to pay any additional fees. Be sure to calculate how much your monthly payments will be before committing to a loan.
There are many variables to consider when comparing personal loans. Factors you should look into include:
Before taking out a personal loan, make sure that you know what your credit score is in addition to having a clear understanding of your financial picture. Consider the interest rate you're likely to qualify for, compare lender requirements and terms, and calculate how much your monthly payments will be. To minimize damage to your credit score, apply with multiple lenders in the same timespan. Go over the terms of the loan carefully before officially taking on the loan.
For the best results, you should work on building up your credit before taking on more debt.