Your credit score plays a major role in the types of loans for which you’ll qualify. Not only does that three-digit number help lenders decide whether to trust you with their money, but it also secures high loan amounts and lowers interest rates. Lower interest rates equal lower monthly payments and a lower loan cost overall.
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Those with a good credit score have many options when it comes to choosing a personal loan. A good credit score lets you take advantage of searching for the best APR and interest rates with less worry. Because you have options, you can spend more time comparing lenders to find one that works for you.
Shopping for a personal loan lender
Choosing the right lender for your personal loan is important. You’ll likely be working with this company for three or more years, so you want to choose a company that has a good reputation, excellent customer service, and fair loan terms.
Before choosing a lender, identify which type of personal loan you want or need. Personal loans come in many flavors from secured personal loans to peer-to-peer personal loans. Each type of personal loan offers unique benefits as well as some potential pitfalls.
Secured personal loans: This type of loan requires collateral, like a car, home, or savings account. If you need a very large loan or your credit is a bit spotty, this may be a safe option to secure better rates.
Unsecured personal loans: An unsecured loan is the most common type of personal loan. You don’t have to offer up anything but your signature to accept the loan. You’ll need at least a fair credit score to qualify for the best rates on this type of loan.
Peer-to-peer loan: A peer-to-peer loan is a relatively new form of personal loans. The lending option first appeared in 2005. In the years since, a lot of online platforms have joined the fray, providing many options for consumers interested in a crowdfunded type of loan. Borrowers work directly with investors, who are hoping to get a higher return on their investment. Popular P2P sites include Upstart, Lending Club, and Prosper.
When looking for a lender, make sure to ask the following questions, and use the answers to pick the best lender for your situation:
- What is the interest rate and APR on the loan you’re offering?
- Is the interest rate fixed or variable?
- Are there any loan origination fees?
- Do you charge an early-payment penalty?
- Can you tell me all the costs associated with this loan?
- How much will my monthly payment be?
What is a credit score and tips to raise your number
Credit scores are a simple metric that helps lenders decide if they’ll lend you money, how much they’ll lend, and how much they’ll charge. The FICO credit score is one of the most popular scoring systems. Their scoring system is as follows:
- Under 580: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very Good
- 800+: Exceptional
Another common credit scoring system is Vantage. The Vantage Score range is a bit different.
- 300-499: Deep Subprime
- 500-600: Subprime
- 601-660: Near Prime
- 661-780: Prime
- 781-850: Super Prime
While the numbers and terminology are a bit different, they’re fairly similar. Keep your score over 650 to qualify for loans. Aim for 700 or more to qualify for the best rates.
If your goal is to increase your credit score, here are a few helpful tips:
- Always pay your bills on time.
- Lower your total amount of debt and/or increase your income.
- Check your credit report to make sure all the information is correct.
- Consider asking your credit card companies to raise your credit limit (but don’t spend it).
- Consider participating in a credit score boost program that will count rent, utilities, and other payments towards raising your credit.
Qualifying for a personal loan with a good credit score puts you in a great position. Take advantage of your options and take some time to make sure you find a lender that offers you the best rates and the best service.