When you are facing a financial emergency or unexpected expense – like an urgent car repair or hospital bill – a personal loan can be a lifesaver. If you need funds fast, you might wonder if you qualify. ” Is there a certain credit score needed for personal loans?” Given my credit score, will I be OK?” Well, it’s time to find out as we cover all the details here. We start with a quick review of how credit scores work and why they matter. What Credit Score Do I Need For a 5000 Pound Loan?
Any time you apply for a new loan – whether it is a personal loan, credit card or mortgage – the lender will gather information about you. This is to decide if they want to lend you money. And if so, how much, and at what interest rate. To accomplish this, lenders will often access your credit report. Your credit report is a statement of information about your credit history and current credit situation. It contains details about current and past loans. It includes the amount you borrowed and your payment history.
Credit scores are three-digit numbers based on your credit report. There are multiple companies that calculate credit scores, including FICO and TransUnion. Each score is based on a different model, so your scores might vary across providers.
Borrowers who have sold credit reports and high credit scores are viewed by lenders as being less risky. This means they are seen as less likely to fall behind on payments or stop paying altogether. In fact, just 1% of consumers with a FICO score of 800 or above are likely to become seriously delinquent in the future. As such, lenders generally offer these borrowers loans with lower interest rates and/or larger amounts.
On the other hand, borrowers with shakier credit reports and lower credit scores are typically offered loans with higher interest rates. Alternatively, lenders offer lower amounts due to the increased perceived risk. About 60% of consumers with a FICO score of 579 or less are likely to become seriously delinquent in the future.
It is smart to regularly check your credit report for any errors or inaccuracies. That way, when the time comes to apply for new credit, a mistake won’t keep you from getting the best possible loan terms. You are entitled to a free copy of your credit report every 12 months. This is from each of the three major credit bureaus: Equifax, Experian and TransUnion. If you find an error, you can dispute it by phone, written letter or online.
What about your credit score? There are several online tools that enable you to check your score for free. Keep in mind the score you see may not be the exact score your borrower sees. This is due to differences in timing and variations in models across score providers.
To qualify for a personal loan, most lenders require that you have a minimum credit score. It is often somewhere between 580 and 600. For scores above the minimum, lenders typically adjust their offers. They do this according to score ranges, reserving their very best terms for borrowers with excellent credit. For example, let’s say a lender does not offer loans to borrowers with FICO scores under 600. Wit scores between 600 and 620, the lender offers a median interest rate of 38% for a £5000 loan. For scores between 620 and 650, the median interest rate for a £5000 loan drops to 36%, and so on. As you can see, a difference of just 20 points can vault you into a better category, saving you hundreds of pounds in interest over the life of your loan.
While each lender will have unique qualification criteria, it is always helpful to know your credit score before starting the application process and to continually monitor your credit profile.