If you have multiple high-interest loans, especially credit cards, debt consolidation can be the way to go. However, if your FICO credit score is below average, you don’t know whether you can even get a loan. The good news is that there are options out there for people in your situation.
What Credit Score Do You Need For Consolidation?
While each lender has its own loan eligibility requirements, every lender will factor in your credit score, income, and debt-to-income ratio when assessing whether you are able to pay back your loan.
So, what’s the best credit score for a debt consolidation loan? Well, lenders often require a score of around 650, although some lenders may accept scores of 600 or even less. Just remember that the higher your score, the easier it is to qualify. It’s also true that the lower your credit score, the higher the interest rate.
You can help your chances for loan approval by putting any extra cash toward existing debt If you can spare a few months before you applying for your debt consolidation loan. Then when you’re shopping for lenders, look for one that may take your recent moves into account.
Measures To Take To Get A Loan
One of the first things you should do is check and monitor your credit score because your credit profile is what lenders focus on most. Knowing your credit score will make it easier to pinpoint lenders that may be able to work with you. Many cite their requirements on their websites.
You should also shop around. Do your research and compare loan amounts and terms as well as fees from sources including credit unions, online lenders, and large banks. This process can take time but don’t skimp – you want the best deal you can find.
Consider Different Options
Online lenders are usually a good place to start since you can typically see what your rate might be with only a soft credit inquiry, which won’t ding your credit score. If you’re a longstanding customer with your bank and have a good relationship, check there as well.
Now, if you’re having a difficult time gaining loan approval, you may want to consider a secured loan with an offer of collateral, such as your house or car. Of course, the property’s value must be enough to cover the loan should you default. Be careful with this option though, defaulting on that loan will cost you your home.
Boost Your Credit Score
If you’ve done everything you can think of and you can’t find a loan that offers an interest rate that is less than what you’re paying on existing debt, perhaps you should wait and take time to shine up your credit to get a better score.
Be sure to make monthly payments on time, and for several consecutive months. You also may want to focus on reducing credit card balances and watching your nonessential expenditures. Now may be a good time to consider whether you need a club membership, say, or meal subscription. If you cancel those, use the savings to pay down your debts. Doing so will help your credit score and make you a more attractive loan candidate.
Watch For Predatory Lenders
It’s better to take deliberate steps to improve your eligibility status than to be impatient and fall victim to a predatory lender. Many of these companies work with individuals who have low credit scores and will often charge exorbitantly high interest rates and a bunch of extra fees. As a basic rule of thumb, Don’t take out a loan with a steep interest rate since doing so can end up costing you money and you may go even deeper into debt.
So, while there may not be a single best score for a consolidation loan, you now have a good idea of what lenders look for and what your options are. Take steps to do what’s best for your situation.