There is nothing more frustrating than being declined or rejected when applying for a loan. You no longer have to experience any sleepless nights because you are wondering whether your credit is good enough to get you a great loan. This article will break down all you need to know. So, what credit score is needed to get a loan.
Having a minimum FICO of 620 will secure you any kind of loan that you desire to have. However, other factors such as the income vs. the debt come into play. As the Fair Isaac Corporation credit score (FICO) is used to help people when it comes to determining their credit worthiness, it is important to always be aware of your score when you want to get your desired credit.
Unfortunately, different agencies determine credit scores using a variety of methods. On the other hand, to get a credit card, you need to have an established income, a regular salary and a good credit score. Most credit card applications require a score of 600 to 750, with the former being an average credit. It is important to always keep track of your score in order not to miss out on a chance to get a substantial loan down the line.
What is a credit score
A credit score is needed for you to be able to get a loan or credit. The reason behind this is because it will help financial institutions to determine your creditworthiness. They will also see every loan that you made and the payment history that you have. Find out more about it by reading the information below.
Credit scores are calculated based on the proprietary algorithm. This will include the person's outstanding debts, payment history, and the length of the individual's credit history.
Credit scores can range from 300 to 850. The higher the individual's score, the lower the risk. People who have lower credit scores are considered high risk, which will make lending companies ask for more requirements.
About Fico scores
Fair Isaac Corporation is the one who established FICO, and it is one of the most commonly used credit scoring systems today.
According to FICO, 90% of the most reputable and respected lenders today are making decisions according to this kind of credit scoring system. Get to know more about Fico scores by reading the information below.
How are credit scores calculated?
The weight of each of the five categories are; 30% of amount owned, 10% is for the new credit, 15% accounts for the length of credit history, 10% is the credit mix and the last 35% accounts for the person's payment history.
The FICO score takes into consideration positive as well as negative aspects of the credit report. The percentage or the weight of any of the categories mentioned above may differ from a person to another depending upon the information available in the credit report.
The FICO score takes all of the information from your credit report. However, the banks or any other lending institution might look at your income, type of credit and employment history when you apply for a loan or mortgage.
Once a certain lender asks for a client's credit report, they can also ask for the Fico score. Other sources say that your Fico score will include 35% of your payment history, 30% of your credit utilization, and 15% as to how long have you been borrowing.
Explanation of credit score ranges
It is important to know the category that you fall into when it comes to credit score for you to be aware. The range of a credit score can go from 300 to 850. Always remember that the higher your score, the higher the chances of you to qualify for a loan. There will also be instances where a financing company is okay with 650 scores, while the other is fine with a 750 score. It will all depend on the lender itself.
A lender or a bank will check your credit score if you qualify for the application that you are requesting. Here are some of the credit score ranges that you should know.
Bad credit score
People with a credit score below 579 is known as high risks. Foreclosures, poor payment history, and bankruptcies are the reasons why people fall into this category.
Good credit score
A good credit score ranges from 680 to 719. People with this credit score can expect approvals and interest rates that are better.
A very good credit score ranges from 720 to 799. People with this credit score is known to be small risks, and they often get loan amounts that are higher than usual.
An excellent score ranges from 800 and above. Financial freedom is expected to people with this score.
Things you can do to improve your credit score
Having a bad credit score is similar to having poor health. Therefore, you need to take measures that ensure you are continually improving on it. The most efficient way of repairing bad credit is good management over time. Improving your credit score is necessary for you to be eligible for better terms and rates for loans in the future.
Regular credit report checks
You are advised to monitor your credit report regularly to see if it has any errors. A credit report brings you up to speed on your status as a debtor. Ensure that the payments are reported correctly and the amount owed to each creditor is correct. Errors must be disputed to your credit bureau promptly.
Reduce your debt
Most people usually take loans just because they are eligible for them without considering the potential damage to their credit score. For a start, you can reduce your reliance on credit cards. Design a plan that ensures you give priority to your debts that have the highest interest rates.
If your monthly premium is not automatically debited from your account, you need to set up a payment reminder. Timely credit repayment improves your credit score over time. Some financiers usually send emails or texts to their clients to make payments.