What does it Mean to Have Fair Credit?
The reference to fair credit is based on the classification of the borrower’s credit history by the three major credit agencies. They use a variety of metrics to arrive at a credit score for an individual. Those factors include payment history, current debts, credit history, and recent new credit issued. A fair credit score means the borrower has better than poor credit, but lenders still consider them relatively risky.
The major credit rating agencies that report credit scores that lenders can use include the following:
Each of the credit rating agencies has its own scoring metrics. It’s accepted that the borrower’s payment history and outstanding debts make up roughly 65% of the weighting when determining credit scores. While each credit agency has a different rating that constitutes fair credit, the acceptable credit score range for fair credit is a score in the high-500s to mid-600s.
Is it Possible to Get a Loan with Fair Credit?
The short answer is yes. There are many reasons why you might have a fair credit score. They range from past bankruptcies to a history of late payments. Your credit score might even dip drastically if you have a large amount of outstanding debt compared to your income. However, the most noticeable outcome of a fair credit score is higher interest rates from lenders. You can still get a personal loan if you have fair credit, but expect to pay somewhere around 20% APR.
How to Qualify for a Fair Credit Loan
We’re not going to lie; it can be challenging to secure a personal loan when you have fair credit. But fortunately, some things can improve your chances (and credit score).
Get a co-signer: A co-signer is someone who pledges to repay the loan if you can’t or won’t. Typically this is a family member or close friend. When you use a co-signer, the lender will take their credit score into account along with your own, which can improve the chances of being approved for the loan and even lower your interest rate.
Pay down existing debt: You might have a fair credit score because you have too much outstanding debt. Pay that debt down, and you’ll see your credit score rise, making it easier to secure a personal loan for fair credit.
Make payments on time: Few things will hurt your credit score more than late payments. If you want to see a steady rise in your score, keep making all your payments on time. You’ll be amazed at the improvement.
Securing the loan: One easy way to get approved for a fair credit personal loan is to secure that loan with something of value. If the lender knows that they have collateral securing the loan, they will be far more likely to approve your loan.
Keep credit utilization low: You can also help yourself by not using all your available credit. In fact, it’s suggested that you keep your credit utilization below 35% if you want to see the greatest benefits to your credit score.
Improve Your Fair Credit Score
If you want to get approved for a fair credit loan, the usual advice revolves around building up your credit score. This is a reliable strategy used by many people to improve their chances of being approved when applying for a fair credit personal loan. Here are six methods you can use to boost your credit score:
- Check your credit reports from Experian, TransUnion, and Equifax.
- Make all your payments on time.
- Lower your credit utilization rate.
- Ask a family member or friend to apply with you as a co-signer.
- Take advantage of score-boosting programs.
- Don’t apply for new credit accounts too frequently.
Comparing and Choosing Fair Credit Loan Options
Getting a personal loan can be a significant financial decision. Because the loan can have a large impact on your personal finances for years to come, it’s good to compare offers from several lenders before committing to any personal loan. Below are four considerations when shopping for a fair credit loan.
Avoid High-Interest Rates & APR
Your loan’s APR is the annual percentage rate; however, it comprises more than just the actual interest rate. Finding the lowest interest rate can help you get a lower monthly payment, but you also need to consider other fees that can increase the APR and your monthly payments. These include origination fees that can increase your cost of borrowing.
Use Marketplace Lenders
Marketplace lenders are a great way to find the lowest interest rates and best repayment terms for your fair credit loan. Marketplace lenders like LendingTree and Monevo match lenders with borrowers. Because they have relationships with the lenders, they can negotiate the best terms. Marketplace lenders will also assist in prequalifying your loan, giving you the most accurate lender comparisons.
Be Aware of Repayment Terms and Fees
Your loan repayment terms include the interest rate, monthly payment requirements, associated penalties, or special repayment provisions. Knowing these terms can help you understand the total cost of the loan, budget for repayment, and avoid any nasty surprises, like prepayment penalties. This is when the lender charges you for paying off the loan balance ahead of time.
Gravitate towards Lenders that Allow for Co-Signers
You might improve the loan terms quickly by recruiting a co-signer with an excellent credit score. Look for lenders who will allow you to use a co-signer, and you can get better loan terms, leading to potentially considerable savings over the life of the loan.
Alternative Options for Fair Credit Loan
Despite taking action to improve your credit score, shopping lenders, and looking for a co-signer, there could be times when you’re unable to secure a fair credit loan. But, don’t fret; certain loan alternatives might work for you.
0% introductory APR credit cards: Some credit card companies will offer new customers terms that include no interest for as long as 18 months. If you’re confident you can pay off the loan before the 0% introductory rate ends, this can be an acceptable way to get a fair credit loan without paying any interest.
Home equity loan: If you’re a homeowner with equity in your home, you can pull some of that equity out in a home equity loan. Home equity loans often have lower interest rates, but be careful. Because your home is securing the loan, you could potentially face foreclosure if you default on the loan.
Home equity line of credit (HELOC): Similar to a home equity loan, a HELOC is a line of credit that you can draw on as needed. HELOCs are a useful way to have credit available whenever you need it, but like the home equity loan, any funds borrowed are secured by your home.
We’re confident that our personal loans guide has given you a better understanding of your options for fair credit loans. As you’ve learned, several options are available for fair credit loans, including personal loans, secured loans like HELOCs, and even 0% interest rate introductory credit card offers. Best of all, a personal loan can help improve your credit score over time. Not every loan option is best for every borrower. We recommend you continue educating yourself about the best personal loan options available.