The better your credit, the more likely you are to qualify for a loan. Agencies such as Equifax, TransUnion and Experian collect your credit information, create a credit history report and give you a credit score ranging from 300 to 850 points. They also use a rating system that places your credit score in categories ranging from “A” to “D,” with “A” credit being excellent and “D” credit being poor. A credit score of 580 is in the “C” category. To qualify for a loan with a 580 credit score, you may need to secure the loan or provide a co-signer.
Before You Apply
Get a copy of your credit report and credit score from all three credit-reporting agencies. Make sure the information in your credit report is accurate and correct. If you locate any errors, check the agency’s website and follow instructions to file a dispute and correct your report. All three agencies provide instructions to file disputes online.
Pay down or pay off as much revolving credit as you can before you apply for a loan. Revolving credit is open-ended credit such as a credit card. MSN Money suggests that you limit credit card balances to no more than 30 percent of your card limit. For example, if your credit limit is $1,000, try not to carry a balance of more than $300.
Research the type of loan you are looking for and shop for a lender. Whether you are looking for a mortgage, vehicle loan or a personal loan, get information on available loan types, time frame for repayment, terms and conditions. Lenders have differing credit requirements. Even if you do not qualify at one lender, you may qualify at another.
Start or continue saving. You may need to provide a down payment, or a larger down payment than usual, to qualify for a loan with a 580 credit score.
When You Apply
Make a down payment. If the loan requires this anyway, offer to make a larger down payment. The larger your financial interest in the loan, the lower risk you present to a lender.
Secure the loan. A secured loan means the lender has some protection if you default and can seize the collateral you provide. CC-Debt Consolidation specifies home loans, home equity loans and vehicle loans as good examples of secured loan types.
Get a co-signer. Bring along a family member or friend with a credit score high enough to qualify for a loan on his or her own. A co-signer helps to guarantee the loan by signing loan documents with you. The co-signer or co-borrower will responsible for repayment if you default.
Items you will need
- Credit report
- Loan security
The Fair Credit Reporting Act entitles you to a free copy of your credit report once every 12 months from Equifax, TransUnion and Experian. You must make your request for a free report, however, through the Annual Credit Report website. The report will not include your credit score but it is available for a fee at each agency website.
Each of your credit reports may show different information and have a different credit score. This is normal. Not every creditor reports information to all three agencies and each agency calculates your credit score differently.
While it is a good idea to talk to your lender and get as much information as you can about loan requirements, do not fill out a loan application until you are ready. Each loan application sparks an inquiry in your credit file and multiple inquires can lower your credit score.
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