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Check your credit scores to find out where you stand.
To qualify for a personal loan, some of the information from your credit report is used to determine your eligibility for the loan. It is key to know where you stand to give you some insight on the kind of loan that best suits you, without hurting you.
Improve your credit health
You can give your credit score a boost in many ways such as making payments in good time. By improving your credit score, you have more options when trying to acquire a loan. A credit score of 700 or higher is usually considered good credit score to get you in good books. You also gain an upper hand in getting minimum rates because good credit scores attract lower interest rates.
Get a cosigner with good credit
If you are applying for a secured loan but you do not have good credit, a cosigner with great credit history can increase your chances of approval and could even get you a low interest rate.
Proof of income
Having a source of income, whether traditional or part time, increases your chances of approval for a personal loan. Verifiable income boosts your approval chances since it is sometimes used as an indicator of your ability to pay back the loan.
How to improve your credit health
Review your credit reports
It is important that you go through your credit reports periodically to determine what is working well and what may not be working in your favor.
Keep updated with payments
Payment history has a huge impact on credit scores, making it crucial to avoid late payments at all costs. You can ensure that your bills are paid on time either by:
- Creating a filing system that keeps you on track of all your payments
- Setting alerts reminders for payment due dates
It is advisable to set up a reminder to ensure that you do not miss out on any dates that you need to make payments for the loan.
Automating bill payments
If setting up reminders still feels cumbersome for you, you can have your payments checked off electronically from your checking account. Besides being very convenient, doing so would qualify you for a .25% discount with National Auto Partners.
Aim for 30% credit utilization or less
This is the portion of your credit limit at any given time. This is a key factor considered in credit card calculations. This can be easily achieved by making full payments each month to help keep the outstanding balance down. However, if this is not feasible for you, you can try and keep your outstanding balance at 30% as you try to get it down to at least 10%, which will improve your credit score dramatically.
Using credit monitoring services
You can use credit monitoring services to help you track your progress over time. Many of these services are free and can be quite essential in helping you see how your credit score changes over time. This will give you insights on your next steps to improving your credit score.
Quick comparison of secured and unsecured loans
Qualification
Secured loans need a collateral to back up the loan while in unsecured loans, there is no need for a collateral.
Rates
Unsecured loans have interest rates ranging from 6-36%. Good credit scores give you the advantage of enjoying a lower rate as compared to fair or bad credit. Secured loans normally have lower rates than unsecured loans. Also, the rate you get from a secured loan is also influenced by the kind of collateral / financial asset used to back the loan.
Repayment terms
Unsecured loans are paid on a fixed rate in monthly installments. This usually takes two to seven years while secured loans can be repaid either by a fixed rate on a monthly basis or a variable rate. They normally have a longer repayment period as compared to unsecured loans.