What Credit Scores are Needed for Different Types of Loans
Credit scores and reports can be complicated subjects to understand. After all, it is not something that we are taught in school, nor is it something that there is a great deal of public information on. That’s why we put together this useful article to help you understand what a credit score is and what credit score is needed for particular types of loans.
Use the below information to plan your finances and make sure you get the best loan possible.
Credit Scores Needed For Your Loans
What Is a Credit Score?
A credit score is a number produced by blending many diverse factors. Credit scores range from 300 – 850. The higher your score, the better your credit, and vice versa.
There are a few different factors that influence your credit rating, including the average age of your credit history, your credit limit usage, the mix of your credit accounts, new credit, as well as your credit history.
Each of these factors can affect your credit score in different ways. That means there is usually no single, one-size-fits-all response to questions about how particular actions will influence your credit score. This is because your credit history, credit report, and personal circumstances are unique.
How Do Credit Scores Influence Loan Decisions?
Loan decisions are based on the lender’s confidence in your ability to repay the loan, which is what they will look for in your credit score. The more risk you present to default on a loan, the higher the chance that the lender denies your application.
Additionally, if you are approved for a loan with a risky credit score, the higher your interest rates will likely be, which means you will eventually pay more for the loan.
How Credit Scores Affect Different Types of Loans
The minimum credit score you want to get approved for a personal loan is often dependent on the lender. Some lenders say their requirements upfront, while others do not disclose minimum credit requirements before applicants undergo a pre-qualification process or application for a loan.
In most cases, applicants who apply for loans and receive approval generally have credit scores between 600 and 700. For a general idea about whether your credit score meets eligibility for a personal loan, check which range your score falls into.
If you are not sure whether you will qualify for a personal loan, you may also look into putting up a security deposit or upfront fee when applying.
Mortgage loans provide significant assistance to a lot of first-time homebuyers by offering mortgage loans with lower down payments.
Although this is a benefit for a lot of people, recent changes in mortgage policies have placed mortgage loans out of reach for some prospective homeowners with questionable credit history.
The minimum credit score you will need to qualify for a mortgage depends on the sort of mortgage you are applying for. Credit scores differ whether you are applying for a loan insured by the Federal Housing Administration (FHA Loan), a loan guaranteed by the U.S. Department of Veterans Affairs (VA Loan), or a traditional mortgage loan secured by a private lender.
For those considering applying for an FHA loan, applicants are now required to have a minimum credit score of 580 to qualify for the reduced down payment benefit. If your credit score is below 580, this does not mean you are necessarily excluded from FHA loan eligibility.
Applicants with lower credit ratings might need to put a 10 percent down payment if they would like to be eligible for an FHA loan.
For federal student loans, you do not need to have a minimum credit score. One reason the federal government is involved in providing student loans is due to the fact that most students do not have a history of earnings or credit, thus credit scores aren’t required for applying for a federal student loan.
Additionally, there is no way for private creditors to evaluate how insecure a loan is or what interest rate to charge without assessing a credit score.
The sole exception is Federal Plus Loans for parents and graduate students. While there is still no minimum credit score for these types of student loans, you will need to pass a simple credit check to verify that you do not have any significant issues with existing creditors.
For private student loans, you will need a good credit score or a cosigner when applying. Private student loans work like most other loans, whereas a creditor looks at your credit rating, along with your debt to income ratio, to determine how likely it is that you will repay the student loan.
When applying for a private student loan, you will need a minimum credit score of 670. The higher your credit score, the lower the interest rate you will likely be offered by the lender.
Since most undergraduates have not established a history of earnings or credit, and there is not enough information about them on file with the credit bureaus, most personal student loans are cosigned by a parent, another relative, or close friend.
A cosigner agrees to take on the responsibility of repaying the loan if the borrower is unable to, and the cosigner’s credit score is used to determine the interest rate of the student loan. A cosigner with great credit can help you to get a private student loan at rates that are competitive with more expensive Federal Plus loans.
You can find a car loan and get a vehicle with almost any credit score, but your odds of being rejected or receiving a higher interest rate are much higher if you have a poor credit score.
Applicants with a credit score of over 700 are more likely to qualify for auto loans with low interest rates. These consumers are deemed to have good or great credit since they are near the top of the credit score range.
Applicants with credit scores between 650 to 699 should anticipate interest rates more than double what higher tier borrowers get, while applicants with credit scores between the ranges of 450 to 649 can expect interest rates that are more than three times the best prices available.
Applicants with credit scores of 449 or below can expect to pay more than five times what is available in interest rates.
How SmartCredit Can Help
Your credit score is a powerful tool when it comes to your financial well-being. Therefore, it’s critical that you do everything you can to ensure that your credit remains in good standing.
Use SmartCredit to review your credit report and any items that could be negatively affecting your credit score.
Contact us today or sign up with SmartCredit to view your credit score and take the necessary steps to improve your credit score right away.