If you’re finding it difficult to meet your monthly obligations, are behind on your utility bills, or need emergency funding, then getting a personal loan may be your way out. The main distinction between personal loans and other types of loans is that personal loans generally do not require collateral. While getting a personal loan can be easy, you need to meet the following requirements before any lender will grant you one.
Good Credit Score
Different lenders have different credit score requirements. A good credit score ranges between 710 to 850. Your credit score shows your ability to repay a loan. Your score is computed by gleaning over various pieces of information. This information includes the types of loans you’ve had in the past, the amount of each loan, the credit limit for your credit cards, whether you’ve paid on time, collections activities, foreclosures, bankruptcies, and other negative occurrences. Equifax, Transunion, and Experian are the major authorities that compute consumer credit scores in America. Your credit score changes over time as these reporting agencies collect information used in their calculation models. Each of these three credit reporting agencies provides a free credit report annually. You can review your report by visiting AnnualCreditReport.com. You can lower your credit score by lowering your debt, paying your bills on time, and avoiding new credit.
Low Debt to Income Ratio
Low debt to income ratio, also known as DTI, refers to the total amount spent on monthly debts such as auto loans, student loans, and credit card payments against your monthly income. The DTI ratio shows lenders how much of your income is spent on paying off debts. Lenders regard a low debt to income ratio as an indicator that you can take on more debt. A good DTI ratio is below 35%. You can lower your debt to income ratio by paying off most of your debts and having more income at your disposal at the end of every month.
Low Credit Utilization Rate
Credit utilization rate is derived from dividing the amount of credit you’re using by the amount of credit available to you. This information is gathered from the balance statements of your credit accounts. Many lenders frown on a utilization rate that is above 30%. If you have access to a large amount of credit, try using only a fraction of it (below 30%) to improve your eligibility for a personal loan.
Good Credit History
Your record on handling debts is an important determinant for your eligibility for personal loans. Lenders are likely to turn you down if you have little or no history of borrowing money. This is because it is difficult to predict your borrowing habits.
If you have a poor credit score, a high debt to income ratio, a high credit utilization rate, or your credit history is poor, then you may need a co-signer to qualify for a personal loan. Co-signers are relatives or friends with a good credit score who assume responsibility for your loan if you fail to make the designated payments. When choosing a co-signer, look for someone with a good credit score and an impressive credit history.
If you are pressed for fast cash, ensure you have a good credit score, debt to income ratio, credit utilization rate, and credit history before approaching a prospective lender. If it’s likely that your loan application will be rejected, find a co-signer to improve your chances. Securing a personal loan can be one of the best ways to help you get immediate financial assistance for emergencies.