Credit scores are an interesting but important tool that gives potential lenders a picture of your financial health. Often issued by a Credit Rating Agency (CRA), they act as a measure of your reliability as a borrower. The criteria to determine your credit score may differ depending on your CRA, as all of them use different formulas.
With the challenges of the current economy, you’d be among the privileged few to still have a positive or high credit score. In fact, a study presented an uptick in credit applications from the beginning of the pandemic as rising prices have continued to impact everyday finances.
However, if you have a less-than-perfect credit score and are struggling to find a loan that suits your credit score, we’ve got you covered.
In this article, we’ll explore the top 4 loan options that you can access based on your credit score.
1. Zero Credit History
If you’re a young adult starting with financial responsibilities or someone who never had to borrow or pay using credit, you most likely don’t have a credit history. Not having a credit history is no crime, but it certainly helps to build up some credit before you apply for a loan.
Lenders generally have mixed feelings about first-time borrowers; they’re unsure of how you’d manage your loan repayment as they lack a reference point to check through. In the absence of such a credit history, they could either give you a loan at the advertised rate or flat-out refuse your loan application.
Your best option is to go for a credit builder loan. These loans are usually small amounts that can not only help you with your immediate financial needs but also help build up credit. Repaying on credit builder loans helps boost your credibility with lenders. This often helps you access better credit options later.
Other options include a secured loan or a secured credit card. These have better & faster approval times, though they come with limited credit.
2. Bad Credit or Poor Credit Score
A poor credit score or bad credit doesn’t make it impossible to get a loan but it does make the process harder as your credit options are limited. Well, how to get a bad credit loan then?
A poor credit score can only get you limited fund options. It’s commonly understood that loan options would come with high interest rates for those with bad credit. However, it’s also important to be cautious of lenders who agree to give you loan amounts above your borrowing limit despite a poor credit score.
Predatory lending practices have led many from manageable debt to bankruptcy. So make sure you do your due diligence on credit options to protect yourself.
Your best credit options would be to go for loans where funds are given to you based on collateral, like a secured loan or a guarantor loan where someone else co-signs & agrees to pay the loan if you’re unable to do so. A credit builder loan is also something you can consider for small fund requirements.
3. Fair to Good Credit Score
This is the credit score range where your credit options are better and credit management is hopeful. There is certainly scope for improvement, this can absolutely be considered as the average credit score range.
While you may not have access to premium or exclusive credit options yet, you can slowly build your way up from here. Access to certain high-sum loans may still require a guarantor or collateral, but you have a broader range of credit options to choose from.
If you have a fair credit score, secured loans, credit builder cards or credit cards with limited rewards/perks may be a good option. You could also access personal loans. It’d be wiser, however, to take a personal loan from a non-profit lender or a credit union for a low-interest option.
If you have a good credit score, you can easily get mid-tier credit cards that come with 0% interest options. Personal loans are also more affordable in this credit score range, as are mortgages and car financing options. You also have better chances of getting loans at the ‘annual percentage rates’ (APR) that are advertised by lenders.
4. Excellent Credit Score
Congratulations if you find yourself in this credit score range. Not only are you in the top bracket of your credit score, but you also get some of the best credit options.
The perks of being in this range start with faster approval times and easier application processes; lenders may skip hard credit checks altogether in your case and may even offer you flexible loan repayment options.
Not only do you get to choose unsecured loans at this stage, but you also have access to high-limit credit cards with rewards like travel perks, cashback, discounts, brand partnerships, loyalty programs, special access to VIP lounges, concerts, and more.
The best benefits still come in the area of utilities and telecommunication services. Most utility services require big security deposits to turn on services. If you have an excellent credit score, utility providers are more likely to forego security deposits or other guarantee requirements.
An excellent credit score is the foundation for improved savings and better credit management. It’ll keep you cushioned and financially comfortable.
Conclusion
Borrowing is a serious and important financial responsibility. It shouldn’t be taken lightly as it has implications not just for your credibility but also for your financial future. While loan repayments form the bottom line of any credit improvement plan, it’s best to understand your credit options and make informed decisions.
