We all expect a bad credit rating or a history of defaulting on payments (or missing payments) to make it difficult to find a credit card or loan. However, most people don’t realize that even a “fair” credit score can affect your chances of getting a good low-interest loan with added benefits.
Despite this, taking out and successfully repaying a personal loan is one of the best ways to boost your credit score from “fair” to “good”. Of course, there are steps that any financially savvy debtor should know before taking out a personal loan with a “fair” credit score.
Why get a fair loan?
There are several reasons to apply for a loan if you have a good credit score. Of course, most people get loans to consolidate debt, deal with an emergency, or fund something they don’t have the savings to cover. One overlooked reason to take out a fair loan is to improve your credit score for the future. Successfully repaying a personal loan will improve your credit score and make it easier to get loans or mortgages at great rates in the future.
What to Consider When Applying for a Fair Credit Loan
If you decide to go ahead with a personal loan, keep these five things in mind to increase your chances of getting what you need on the best terms:
- A “pre-check” is preferable
Potential lenders will check your credit score as part of the application process. Too many credit checks in a short time can negatively impact your score. However, some lenders offer a “soft check” before applying.
This is best for those with lower credit scores, as it will give you an indication of your chances of success before you apply. Soft checks do not register with your credit history in the same way as a hard check, so they are worth going through in order to give you the best chance of getting a loan without submitting your credit history. to too many firm checks in a short period of time. .
- Affordability is important
Even if you have a credit score that is close to being classified as “good”, affordability will determine what you can borrow and the APR you are offered to some extent. Be honest about your income and expenses, as lenders often verify your income when they can.
- What assets and potential guarantors can you rely on
An unsecured loan may not be available to you. If so, you may need to post an asset as collateral or find someone willing to co-sign your loan. The most commonly used assets for larger personal loans are cars and homes, but if you want to take out a smaller loan, some lenders may consider valuable personal assets, such as jewelry. Either way, requiring collateral for a loan will slow down the application process, you need to plan for this to avoid stress or disappointment.
- Early and late redemption fees
The concept of late fees is well known to most people who take out a line of credit. What fewer people expect is prepayment charges. While credit cards allow (or even encourage) borrowers to pay off what they owe in full within a month, some long-term loans and lines of credit can penalize you for paying early. Read the terms and conditions carefully to make sure you know what charges you could face if you miss a payment or decide to pay early.
- Having a plan B is key
While it is possible to get a personal loan with a “fair” credit rating, affordability is key and some lenders are more risk averse than others. Have a plan B in place in case you have trouble getting the money you need from your top options. Secured loans, credit cards, and payday loans are all options — and as long as you pay what you owe on time, your credit score will improve over time.
There are many lenders who specialize in providing credit enhancement loans to those with low to fair credit scores. These lenders may not offer some of the perks and benefits that others do, so shop around. There are six major lenders that offer favorable terms to fair borrowers, according to Dallas Morning News.
It’s a good idea to do some due diligence with several lenders before you start applying in earnest. Likewise, you should check the credit options available to you before accepting a loan. Shopping around is one of the best ways to secure the best terms and interest rates.