Getting a personal loan when your FICO credit score is classed as ‘fair’ rather than ‘good’ can be a challenge, but it is not impossible. If you know where to look and what criteria you meet, you can find a personal loan that offers a reasonable rate of interest, even when your credit is less than ideal.
What Credit Score is Considered ‘Fair’?
According to FICO, a ‘fair’ credit rating (meaning neither good nor bad) is a score between 580 and 669. Your credit score is calculated based on the amount of debt you have, your overall credit utilization, the presence of missed payments, and credit overspends. This three-digit number indicates to lenders how likely you are to repay your bills.
A ‘fair’ credit score indicates to lenders that you have a credit history that is generally reliable with a few red flags. For example, a few missed payments, high credit utilization, or a high level of short-term debt can all lower your credit score, even if you pay on time and don’t overshoot your limits.
What Impact Does a ‘Fair’ Credit Score Have on Personal Loans?
If you have a ‘fair’ credit score, lenders are more likely to consider you to be a ‘subprime borrower.’ This means that you may have difficulty repaying any credit that they extend to you. The biggest and most noticeable impact of this will be a lower chance of being approved for larger loans.
If you have a fair credit score, you may find it hard to be approved for a loan of $5,000 or more. In some cases, you may even find it hard to get a loan of $1,000 or more. This is dependent on your credit history, affordability metrics, and the risk tolerance of thE lenders that you approach.
Furthermore, the likelihood of a higher rate of interest on any line of credit that they do extend to you will increase if you have a lower credit score. In fact, you may even find that your APR is higher if you are at the lower end of the ‘fair’ bracket than it would be if you were on the cusp of a ‘good’ credit score. As such, a subprime credit score could cost you hundreds or even thousands of dollars more than you borrow if you do not pay the balance in full on a monthly basis.
Having a lower credit score may also lead to you missing out on the best credit or loan offers, benefits, and rewards. That’s because banks and lenders tend to save these incentives for those who have higher credit scores. On a more wide-ranging note, those with fair credit scores may also have a lower chance of renting or buying a property when compared to those with a good credit score.
How to Get a Good Personal Loan with a Fair Credit Score
If you want to get the best possible loan terms with a ‘fair’ credit score under your belt, the first thing that you should do is check rates with various lenders to find out who can offer you the best terms. Check with credit unions, banks, and private lenders alike to get an idea of what you can borrow and what the cost will be. If you are unable to find a personal loan that is suitable or affordable, consider the following options:
- Secured Loan
A secured loan is a personal loan where you use an asset, such as a car or even your home, as a guarantee. If you fail to pay, the lender can take the asset to cover the balance. This may seem daunting, but if you borrow within your means and pay back the money promptly, it will not be an issue. Furthermore, these loans may offer better interest rates, as they offer lenders some security.
- Guarantor or Co-Signed Loan
A co-signed loan with a guarantor may also offer you a better rate of interest and more favorable terms if you have a person willing to help you get a line of credit. Whereas a secured loan uses an asset as collateral, a co-signed loan uses the other party as collateral. If you are unable to pay, they will be expected to.
While these forms of personal loan can be daunting, they offer the option of getting credit at potentially favorable terms, as well as the chance to improve your credit score in the long-term by paying the debt back promptly. As your credit score improves, you will find that your personal loan and credit options become more beneficial and varied
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