In the world of credit, you can look at fair credit as being the middle child between good and bad credit. You definitely don’t want to drop down to having bad credit, so your goal should be to take the necessary steps to obtain a good or excellent credit score. The tricky part is that you don’t have good credit yet, so you have to look for options that cater to people looking for personal loans for fair credit.
Personal loans for fair credit can be a little difficult to acquire. There have been several instances where people with fair credit will get approved for a car loan or a mortgage, but will not get approved for a personal loan. It makes you wonder how that could be remotely possible, right?
Well, the difference in the loans is the collateral factor. Homes and cars are items that the bank can take away if you don’t make the payments. This makes mortgages and auto loans what are referred to as secured loans. A personal loan without collateral is called unsecured because there is nothing to take away if payments stop.
That aspect alone is solely why it’s a risky investment for businesses to take on and because of that, businesses rely heavily on your credit score and what’s on your credit report. Luckily, those aspects don’t mean it’s the end of the road. In fact, if you are in need of additional finances, there are great options out there for you, and to make sure you don’t get rejected, make sure you follow these tips… it will certainly help your approval odds.
Check Your Credit Report and Fix Necessary Items
Before you go and apply for any type of personal loan, check your credit report first. There may be items on there that don’t belong. If you do run into that problem on your credit report, you can have those items disputed and possibly removed. Doing so can substantially impact your credit score.
A Credit No-No
One of the biggest mistakes people make with their credit reports is that they don’t check it often enough. People feel that because they had good credit scores for a previous loan, their scores haven’t changed since then. Back in 2013, the Federal Trade Commission conducted a study that showed 21% of people have errors on their credit report that needed to be disputed.
Disputing is a Lengthy Process
With disputes, the results can either make your credit score go up, down or not change it at all, it just depends on the nature of your dispute and what you’re disputing. This process can take at least 30 days. So, if you think you may need a personal loan for a car or down payment in the near future, you need to go on and start the process of correcting errors on your credit report.
So, let’s say you sent in your disputes, and 30 days later the results of your dispute came back and you’re not in agreement of the results. You now have a few options to substantiate your dispute.
Go Straight to the Source
Your best move will now be to go straight to the source. Contact the company that put the inaccurate information on your credit report. The company that reported that information to your credit report is typically a lender or creditor, but it can also be a collection agency. Whichever type of company it is, their contact information is on your credit report. Use their contact information to get the answers you need.
Attach a Statement of Dispute
Adding a statement of dispute to your credit report enables an explanation as to why information is inaccurate. Whenever your credit is accessed by a lender or financial institution, that statement of dispute will be visible to them. Once they review your statement, they ask you for additional information to determine whether or not they want to lend to you.
Submit Your Dispute Again with Updated Information
After you receive the results of your dispute, if you’re not satisfied, you have an opportunity to verify your claims. This is the time to acquire important documents and information that you can upload or mail in as supporting documentation to your claims. Once you have gathered this information, you can submit your dispute again with updated and relevant information.
Length of Time at Residence
According to Experian, your length of time at your current residence plays an important role in determining whether or not you’ll get approved. Home stability serves as a good indicator that you’re a low-risk investment because it shows that for the length of time you’ve lived there, you have been able to pay your mortgage or rent.
Your time at your current residence isn’t the determining factor, but you never know what lenders will be looking for, so it’s just a good rule of thumb to have this particular ace in the hole when looking to a personal loan to supplement your income.
Weigh Out Your Options in Lenders
It’s common knowledge that lenders look for certain qualities and have specific requirements that borrowers must meet in order for them to lend you money. Well, did you know that you have that same power as well?
Just because you need financial help, that doesn’t mean that you can’t have standards in who you choose to do business with whether you need a loan for bad credit or no credit. The fact that you have fair credit gives you an advantage, being that you’re above the bad credit realm but not quite at the good credit range just yet. You appear as less of a risk to lenders.
Now, just as lenders and financial institutions mark things off their checklist for you, you’ll want to mark these areas off on your own checklist when it comes to shopping around for the right loan for your fair credit.
Look for Good Reputation
When going through the process of finding a loan company that will meet your financial needs, you will want to do a little research of your own to see what type of company you’ll be doing business with. You can go directly to most company’s websites and look at customer reviews to see what people are saying about a particular company.
You can even do a basic Google search of a company and see how many stars that business has. Now, when you see bad reviews, people sometimes think that the reviews come from disgruntled former employees, but that’s not always the case. People really do genuinely try to leave honest reviews of companies they’ve dealt with.
You don’t necessarily have to make your decision solely based off of the reviews, but they can certainly help. If a business is well-run, you will hardly see any negative comments from customers… just something to keep in mind.
Best Repayment Options for Your Lifestyle
This is an important aspect in choosing the right lender for a personal loan. Different companies have so many different repayment options that you want to choose one that you will not have any difficulty paying back.
- Amortizing Payments- This is the most common type of loan repayment option. With this repayment option, your payment includes a portion of your principal and interest to make your loan amount equal to zero at the end of your loan term
- Interest-Only Payments- With interest-only payments, your regular monthly payments will only include the current interest of the loan. At the end of your loan term, you will pay the remaining principal in full. Essentially, this type of repayment plan sounds good in theory because of the smaller monthly payments but to pay that large lump sum at the end can be quite difficult to pay if you haven’t put money aside for it.
There are several more loan repayment options, but your best bet will more than likely be choosing a loan with amortization payments. Yes, your monthly payments will be a little bit more than interest-only payments but at least you’ll know that your underlying principal will go down with each payment until you have a balance of zero.
Look for the Best Low-Interest Rate
When it comes to interest rates, they’re not like scarves where one size usually fits all. The difference in having a low-interest rate and a high-interest rate can be determined by your lender, your credit score, and what’s on your credit report. Just think of it like this: the higher your credit score is, the lower your interest rate will most likely be. The lower your credit score is, the higher your interest rate will most likely be.
Read the Fine Print
When you read the fine print, you want to look for additional fees that may come with the loan that may not have been specified up front. The fine print that will tell you if you’ll get dinged or receive a pre-payment penalty for paying your loan off before the term is up. This is very uncommon, but there are some companies that do. Besides, reading the fine print is a good business and financial habit to have in general. Doing so will never hurt you, but it will always help you.
Check the Income Requirements for the Loan
Income requirements might not be something listed on a lender’s website, but it’s certainly a determining factor in a lender’s approval process… they need to see if you make enough money to repay the money they loan you. Remember, you can’t afford to borrow the money if you don’t have enough income to pay that loan back.
Getting a good understanding of your debt-to-income (DTI) ratio will help you significantly in determining your approval odds for a personal loan. Your DTI is all of your monthly bills (rent, student loans, etc.) divided by your monthly gross income. You can calculate all of that to see what lenders will see when they calculate your DTI ratio.
There are many financial institutions that deem a DTI of 35% as being good and that you’re able to take on additional expenses. A DTI of 36% or higher is a good indicator that you need to make changes to your financial situation and possibly improve your spending habits.
Now, as mentioned earlier, your income isn’t necessarily the absolute determining factor in getting approved for a personal loan, but lenders do look at that to determine if they feel you’ll be able to repay the loan.
Build Your Credit with Good Money Habits
When you’re in the market for a personal loan and you have fair credit, we mentioned earlier that your goal, of course, is to get to good or excellent credit. While in the process of reaching that goal, you have to work with what you have, and what you have isn’t terrible credit.
Just as Rome wasn’t built in a day, neither is your credit score. To increase your chances of approval for a personal loan for fair credit, there are a few good financial habits you can adapt to show lenders that you’re creditworthy.
Make all of your monthly payments on time, and preferably early if you can.
Making on time or early payments will definitely help to increase your credit score, but it’s also just a good financial habit to have in general…even for non-credit related expenses such as utility and phone bills.
Even though these bills don’t affect your credit score when you pay them, they can definitely affect your credit score if you don’t pay them. Those accounts typically get sent to a collection agency if you don’t pay your debts.
Missing payments is one of the quickest ways to take a credit score of 700 and bring it down to 615. A great way to keep this from potentially happening is to set up automatic payments. This can serve as a safety net in the event life gets in the way of things and you forget to make a payment.
Keep your credit utilization rates at a minimum.
Your credit utilization is your credit balance compared to your credit limit. If you’re able, pay your remaining balance in full each month. If you’re not able to do that, try to at least keep your utilization of 30% or less. For example, if your credit card limit is $1000, don’t charge more than $300 in a billing cycle.
As far as credit cards, there is a simple hack that you can do to raise your credit score… all you need to know is your credit card’s due date and its statement cycle closing date. Once you know that, if you can pay off your balance, or at least pay it down by the statement cycle closing date. Your statement will be zero as well as your utilization rate. This will raise your credit score substantially.
Try not to open multiple lines of credit at the same time.
When you open new accounts it lowers your account age. Lenders like to see that you’re responsible with your credit in the aspect that you can maintain an account and keep it positive for extended periods of time. It also shows that you don’t necessarily need extra money.
Keep your credit accounts open for as long as you possibly can, even for credit cards that you aren’t using. You should try to keep them open because it looks good on your length of payment history and credit utilization.
Make Sure You Have a Steady Employment History
Credit score, credit history, debt, and payment history aren’t the only things that lenders look at when making the decision on whether or not to lend to you… there are other important factors that play a role in the decision-making process.
Today, a lot of lenders are looking at your employment history as another criterion in the personal loan approval process. Creditors will look at this to get a better idea of how stable your income will be. You can look at this as being similar to the job hunting process.
Job Hopping
When employers see that you have several jobs within a year, that appears as a red flag for them too. Seeing that you “job hop” frequently can decrease your likelihood of getting hired for fear from an employer thinking you’ll soon leave their company too. From a financial point of view, it will appear as though you won’t be at a job long enough to make steady payments on your loan.
Longevity
If you stick with a job for at least two years, it will show that you are financially and professionally stable. This aspect will show that you are a good credit risk to take. So, if you haven’t been on a job long enough, but need money, you might get approved, but you also need to have a realistic mindset. There is a possibility that you might not get approved with an unstable employment history.
Take Away
Being that you have fair credit, you’re not in a terrible credit situation. You definitely have personal loan options. Make sure you have certain aspects of your financial and credit history in order for lenders to view you as a responsible borrower. If you follow these tips, it will make your application process go very smoothly.
