Unlike many other kinds of installment loans, personal loans don’t need to be for a specific purpose. They are an incredibly versatile kind of loan, which makes them excellent funding options in many circumstances. You can find significantly more diversity in qualification requirements since no one lender or personal loan is the same as the next. If you’re looking for personal loans for a credit score under 600, CreditNinja has you covered.
There is an abundance of personal loans available that don’t have a set minimum credit score requirement. Many personal loan lenders are willing to approve fair credit borrowers. Don’t limit yourself by assuming loan approval isn’t possible with a fair credit score.
We will walk you through why your credit score is important in the lending process, what fair credit loans may be available to you, and what kind of personal loan rates you can expect depending on credit scores.
Reasons for a Personal Loan
There are many reasons why one might apply for a personal loan. Personal loans can be used for almost anything as they don’t have a prespecified purpose like auto loans or home loans. Some borrowers obtain a personal loan to remodel their bathroom or simply to cover expenses until their next paycheck.
The possibilities are endless with personal loans, but here are a few examples of common reasons why individuals seek out personal loan funds:
Debt Consolidation
It can be easy to be bogged down by debt payment obligations, especially when you have multiple lenders, accounts, and monthly payments to keep track of.
Debt consolidation is a helpful solution to credit card debt for many. Debt consolidation loans allow individuals attempting to pay off debt the ability to combine all their credit cards into one single monthly payment through a personal loan.
When you consolidate debt into a single loan amount, it simplifies your repayment terms and can make it significantly easier to pay off your debt quickly. Debt consolidation loans are a popular kind of personal loan for borrowers with unmanageable credit card debt.
A Large Purchase
Personal loans can act as a catch-all for large purchases that aren’t a car or a house. When purchasing a vehicle, you can get an auto loan, but what about a brand new appliance? Expensive home or car repairs? A replacement for your broken window AC unit? It is common to use a personal loan for these large purchases.
Building Credit Score
Some personal loans exist for the express purpose of credit building. Credit-builder loans are designed to help individuals with little to no credit usage history by giving them an opportunity to develop the minimum credit history needed to access a wider variety of financial products.
Why Your Credit Score Matters for a Personal Loan
Credit scores are vital to the proper functioning of the economy as they help potential lenders know the creditworthiness of borrowers before approving a loan or credit card application.
Suppose a borrower poses an exceptionally high credit risk. In that case, the lender will be able to tell from your credit score so that they can either deny the application or raise the interest rate to compensate for the risk.
How Your Credit Score Is Calculated
Credit scores are calculated using the information included in your credit report. The three major credit bureaus compile your credit report with the information provided to them by financial institutions, including identification details, credit accounts, credit inquiries, public records, and collections.
Credit scores are divided into five categories that each account for a different percentage.
Payment History
Your payment history makes the most significant impact on your credit score, accounting for 35% of the calculation. Completing your monthly payments on time is crucial to a good credit score.
Amount Owed
The amount you owe in total and your credit utilization ratio are worth 30% of your credit score calculation. Too much debt combined with little available credit is a recipe for a bad credit score.
Length of Credit History
The age of your credit history is 15% of your credit score. Your credit history accounts for the age of your oldest credit account, the age of your newest credit account, and the average age of all of your accounts. Having an older and more established credit history is favorable.
Credit Mix
Credit mix accounts for 10% of your credit score. You are meant to have a healthy variety in types of debt. Instead of ten credit cards and no loans, your credit usage appears far more responsible to lenders if you have two credit cards, an auto loan, and a personal loan.
New Credit
New credit accounts and hard inquiries in your credit history are 10% of your credit score. Opening too many credit cards or taking out too many personal loans in a short period of time can result in a poor credit score. The same goes for applications that create hard inquiries.
Minimum Credit Score for Personal Loans
The minimum credit score requirement for personal loans depends on the type of personal loan you are applying for. Minimum credit score requirements are not the same for online lenders across the board. It varies greatly by loan type, loan amount, and other qualifying factors.
Here is a basic overview of how your score would be classified and what kinds of personal loans it might meet the minimum credit score requirement for:
740 and Above – Excellent Credit Score
A score of 740 and above is considered an excellent credit score. Credit scores this pristine allow borrowers access to all the best personal loans with incredibly competitive interest rates. An excellent credit score shows responsible credit usage, which means you will qualify for the best personal loan for you, no questions asked.
670 to 739 – Good Credit Score
If your credit score is between 670 and 739, you have a good credit score that will open many financial opportunities for you. You will have access to reasonable interest rates and generous repayment terms. You should be able to qualify for loan approval with a majority of personal loans as long as you can meet other requirements.
580 to 669 – Fair Credit Score
A score from 580 to 669 is classified as a fair credit score. Fair credit will still qualify for the minimum credit score with a decent amount of personal loans. There are a lot of fair credit lenders online which work with subprime borrowers. Fair credit personal loans will likely have higher interest rates.
579 and Below – Bad Credit Score
Any credit score below 580 is considered bad credit. Having a bad credit score can make it significantly more challenging to qualify for personal loans. However, similarly to fair credit loans, there are bad credit loans and online lenders who work specifically with poor credit borrowers.
Bad credit loans will have high-interest rates and costly monthly payments. It is essential to be sure that you can afford bad credit loans before signing the loan agreement. It might be wiser to take some time to improve your score until you have met the minimum credit score for a fair credit personal loan.
Do You Need a Bank Account To Get a Personal Loan?
While most personal loans require you to have a bank account, some lenders will grant loan approval regardless. However, it should be noted that a personal loan that does not require a bank account will charge higher interest rates.
There are several types of bad credit personal loans that you can obtain without a bank account but be sure that you do your research before signing the loan agreement so that you don’t become a victim of predatory lending practices.
Financial Institutions That Provide Personal Loans
The first place that pops into your head when you need to borrow money is probably a bank. But you don’t necessarily need to go to a bank to get a personal loan. In fact, more traditional bank loans can have more stringent requirements on credit scores than other financial institutions like a credit union or an online lender.
A Credit Union
Your local credit union likely offers a variety of personal loans. You might find more flexibility in approval with fair credit for members of a credit union compared to a more traditional bank loan. Every credit union is different, so we suggest contacting them to see if they offer any fair credit loans.
Online Lenders
It is becoming increasingly easier to borrow money online. Using Google, you can find a fair credit lender within minutes. Personal loans for debt consolidation or credit building, or car repairs. You name it, and you can probably find it. Look into the lender, their accreditations, and the reviews they’ve gotten before jumping into anything.
Personal Loans for a 600 Credit Score
While a 600 credit score will not get you access to the best personal loans available, there are plenty of personal loans that you can qualify for with fair credit.
Payday Loan
These are a common type of short-term personal loan that you can qualify for with fair credit or bad credit. Payday loans tend to have very high-interest rates and short repayment terms as they are only meant to hold you off on expenses until your next paycheck. You can qualify for a payday loan with a 600 credit score and proof of income.
Secured Loan
This could be a good personal loan option for borrowers with fair credit. A secured loan uses collateral to reduce the credit risk posed by bad credit scores. A secured loan can be easier to qualify for than unsecured personal loans if the collateral has enough equity value.
Peer-to-Peer Personal Loan
Peer-to-peer lending platforms connect borrowers with investors for personal loans. It’s possible to be approved for a P2P personal loan with fair credit as long as you are prepared to have a higher interest rate to increase profitability for the investor.
How To Improve Your Credit Score
Want to boost your poor credit or fair credit to good or excellent? Consumers can access better interest rates, more affordable monthly payments, and the best personal loans with better credit scores. If your credit score could use some improvement, these are some ways you can clean up your credit history and start practicing credit usage:
Review Your Credit Report
Check your credit report regularly and often to ensure there are no errors or inaccuracies that could be affecting your credit scores. Reviewing your report periodically will also help you better understand what you can do differently to improve your credit score.
Pay Down Credit Cards
Minimizing your debt and decreasing your credit utilization ratio is one of the most effective ways to repair a bad credit score. We suggest looking into the debt snowball method or debt avalanche method for paying off your credit cards. It is not only your credit score that will benefit from paying off debt but also your overall financial health.
Timely Payments
As your payment history has the most significant impact on your credit score, you must make your monthly payments on time according to your loan or credit card repayment terms. Consistent, timely payments on your credit history will cause your credit score to rise with a bit of patience.
Put a Pause on New Credit
Stop applying for new credit cards and loans. Every application authorizes the lender to check your credit, creating a hard inquiry on your report. Too many hard inquiries in a short period of time will harm your credit score. Taking a break from opening new accounts and applying for credit cards could give your credit score the time it needs to recover from any damage caused to it in recent years.
The change won’t happen overnight. But you can get that 600 credit score to 700 and beyond with hard work and patience. Once you have achieved the credit score you’ve been working towards, you can finally explore the wealth of financial opportunities that will open up for you.
References:
Here are the best personal loans if you have bad credit but still need access to cash