A personal loan can be a valuable tool in managing your finances and debt. When you’re paying several creditors, it’s a valuable way to consolidate your debt. But what about your personal loan and credit score? How does having a personal loan, especially for managing your debt, affect your credit score?
Get answers to your personal loan and credit score FAQs.
Will a Personal Loan Affect My Credit Score?
Getting a personal loan can help you solve numerous problems — from paying off credit cards to handling unexpected bills to funding improvements you need to make on your home. A personal loan can also affect your credit score — in both positive and negative ways.
One of the positive effects of taking out a personal loan is that if you keep up with all of your payments on time, it will help raise your credit score. This can help you earn another benefit — the ability to get larger loans or credit cards with higher limits, as well as better interest rates.
On the negative side, when you initially take out a personal loan, it may temporarily lower your credit score, so it’s a good idea to keep an eye on your timing if you also want to apply for credit cards in the same period. Also, you want to be diligent about making payments on your loan because missing even one payment can be detrimental to your credit score.
What Credit Score Do I Need to Get a $5,000 Personal Loan?
A $5,000 personal loan from a bank, online lender, or credit union can go a long way toward helping you with unexpected expenses.
The amount of the loan you want to take out can be dependent on how good your credit score is, and the required score can vary depending on the lender you choose.
Some lenders will expect you to have at least a 580 credit score in order to get approved for a $5,000 loan. However, the minimum score can vary from lender to lender, so in some cases, you may be expected to have a higher minimum score to qualify for your loan.
Just because you don’t have the best credit score doesn’t mean you can’t get access to the funds you need. You may be able to get a loan if you have a cosigner, so asking someone you can trust with a good credit score to help you may be an option. If you’re unable to do this, other options to get the money you need include getting a home equity loan that allows you to borrow against the value of your house or credit cards with high limits.
Can I Get a Loan With 620 Credit Score?
Getting approved for a loan when you have a 620 credit score can be challenging. If you have this score, which is considered fair, it can be a warning sign to lenders that you are a risky customer to do business with. That still doesn’t mean you can’t get a loan, but the terms may not be as good as they would if your credit score was higher. When you have a 620 credit score, you may be charged very high interest rates and fees if you get approved for a loan.
Before trying to get a loan under these circumstances, you may consider ways to raise your credit score. One thing you can do immediately is review your credit reports. There may be some mistakes on these reports that have been detrimental to you, so if you get them removed from your history, it can help improve your score.
Also, you can pay off as much debt as you possibly can, as well as ensure that all of your bills are always paid on time.
Other strategies you can use to improve your score include signing up for a debt management plan, which will help you get your debts under control with manageable payments, or getting a secured credit card.
Also, a credit builder loan, which is offered through a credit union, allows you to make payments towards a loan that has funds in a savings account that earns interest during the duration of the loan. Once the account is paid off, you can receive the loan amount plus interest, and the credit union reports your account in good standing to the credit bureaus.
