Credit loans

Improve your credit score before applying

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Personal loans can be used for a variety of expenses, including weddings, vacations, home repairs, and even as a way to cover emergency expenses. There are a ton of lenders out there to suit an assortment of financial needs and circumstances, including those with fair or poor credit scores who still need to take out a loan to finance a major purchase.

While it may help more people access this financial product, there are still big benefits to making sure your credit score is as healthy as possible before applying for a personal loan.

You can benefit from lower interest rates on a personal loan

When applying for a new line of credit with a low credit score, you will likely receive a higher interest rate, which means it will be more expensive for you to borrow money. This also rings true when it comes to applying for personal loans.

Remember that your credit score can give lenders clues as to how likely you are to repay borrowed money on time and in full. Thus, lenders consider people with lower credit scores to be “riskier” borrowers and will therefore offer them interest rates towards the top of the lender’s range.

But when you apply for a loan with a higher credit rating, you are considered a “less risky” borrower who is likely to repay your loan amount on time and in full. As a result, lenders feel more comfortable offering you a lower interest rate on your loan, which means it will be cheaper for you to borrow that money.

You will not need to apply with a co-applicant

A The co-applicant is a person who applies for the loan with you and is also responsible for repaying the full amount of the loan. Co-applicants are often referred to as co-borrowers and can usually be added to your personal loan application form.

When applying for a personal loan, it is common for lenders to analyze your credit history, debt-to-equity ratio, and other identifying information during the process to determine your loan amount, interest rate, and interest rate. interest and the term of your loan. Applying with a co-applicant who has a higher credit score than yours can help you get approved for a lower interest rate and other more favorable loan terms.

However, not all personal loans allow you to apply with a co-applicant. SoFi Personal Loans allows co-applicants and offers loans between $5,000 and $100,000. LightStream is another lender that gives borrowers the option to apply with a co-applicant, and borrowers can enjoy a 0.25% APY rebate if they sign up for autopay.

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    5.74% to 21.28% when you sign up for autopay

  • Purpose of the loan

    Debt consolidation/refinance, home improvement, relocation assistance or medical expenses

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    2.49% to 19.99%* when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, renovation, car financing, medical expenses, marriage and more

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Also keep in mind that your co-applicant should feel comfortable being responsible for managing the loan with you, and a co-applicant is more beneficial when their credit score is higher than yours.

But if your credit score is already in the good or excellent range, you should feel comfortable moving forward without a co-applicant – that’s another benefit of improving your credit score before submitting a request.

How to improve your credit score

As with any new line of credit, personal loans should be carefully considered before submitting your application and deciding to use it to finance an expense. However, as you weigh your options, you may want to take a few steps to improve your credit score.

Paying your bills on time is the most important thing you can do to increase your score. FICO and VantageScore, which are two of the leading credit card scoring models, both consider payment history to be the most influential factor when determining a person’s credit score (it accounts for 35% of your credit score). credit). For lenders, a person’s ability to meet credit card, utility, student loan, mortgage and medical debt payments indicates that they are able to take out a loan and to repay it.

Next, you should try to lower your credit utilization rate. Your credit utilization rate is the total balance on your credit card divided by the total amount of your available credit. So if you have a limit of $5,000 and you have a balance of $2,500, your credit utilization rate is 50%. Experts generally recommend keeping your total CUR below 30%, and below 10% is even better. You can lower this rate by paying off your balance or asking your credit card issuer to increase your credit limit.

Another good way to improve your credit score is to keep tabs on any discrepancies in your credit report. Errors in your credit reports could affect your score. Although it may seem unlikely that your reports are wrong, 26% of participants in a Federal Trade Commission (FTC) study found at least one error in their reports that could make them appear riskier to lenders.

You can proactively monitor your credit and receive three free credit reports (one from each bureau) per year at annualcreditreport.com. Also select the best credit monitoring services: ranking Capital One CreditWise® as the best free service and IdentityForce® as the highest paid service with more extensive features.

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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.