There are times in life when taking out a personal loan makes sense, and compared with carrying debt on a credit card, it can give you a leg up in managing tight finances month to month. Personal loans can be either secured or unsecured, and can be used for a number of purposes, including making a large purchase, paying off credit cards with high interest rates or consolidating other outstanding debt.
But for consumers who don't yet have an established credit history or decent credit score, getting approved for a personal loan can be a challenge. More than 100 million Americans don't have access to credit today, either because their credit scores are too low or because they don't have enough credit history. Experian Boost™† can help change that.
How Can Experian Boost Help Me Get Approved for a Personal Loan?
Experian Boost is a new, free tool that can potentially help you get approved for the personal loan you need. It's a simple concept: You add your monthly household bills, such as utilities, phone and cable TV, to your Experian credit file. Then, if we detect that you've paid your bills on time each month over a period of at least three months, you increase your credit history in your Experian credit file—and you could see an instant boost to your FICO® Score☉ .
According to Experian research*, 75% of consumers with FICO® Scores below 680 saw an improvement in their credit scores with Experian Boost. And 10% of consumers who previously had a "thin file" (not enough credit history to score) became scoreable after taking advantage of Experian Boost.
Ultimately, lenders make the decision to approve or deny a loan based on a variety of factors, including debt-to-income ratio, employment, collateral and other factors. But moving your credit score from fair to good—which may happen with the help of Experian Boost—could be enough for you to get approved for a loan that was that was previously out of reach.
What Credit Score Do I Need to Get a Personal Loan?
To qualify for a personal loan, most lenders require that you have at least fair credit, which is between 580 and 669 in the FICO® Score range. Consumers with fair to good credit can expect interest rates on personal loans to range from about 6% to 36%. (You can check rates available in your state and apply for a personal loan at Experian CreditMatch™.)
Your credit score will help determine the interest rate you'll pay on the loan; therefore, the better your score, the lower your interest rate. This is where Experian Boost can help. Your boosted FICO® Score could take you to the next credit score range which could the difference between a loan approval or denial.
What to Do Before You Apply for a Loan
After you've boosted your credit score, evaluate your options for your financial situation. All good financial decisions, including getting a personal loan, start with some research. If you're not sure about the minimum credit score required by a particular lender, ask before applying. If you find your score still needs work, follow these steps to help improve your credit:
- Apply for a secured credit card. Secured credit cards are similar to conventional credit cards other than one important factor: You'll have to put down a security deposit—which typically equals your credit limit—to "secure" the debt. This is a great way to help you build credit if you can't qualify for a regular credit card. Find out how you can get a secured credit card here.
- Ask family or friends for help. One way is to become an authorized user on another person's credit card. In many cases, credit card issuers report authorized users to the credit bureaus, adding the account to your credit file. Another option: Ask a loved one to cosign a loan with you. This can help build your credit as long as you make every payment on time.
- Be responsible with the credit you have. Practicing tried and true credit habits will help you improve your credit scores over time. To do that, make all debt payments on time, keep your credit card balances low if possible, and don't apply for too many credit lines in a short period of time.
Keep paying your bills on time, including your utility, cell phone, and cable TV bills, and your credit scores should continue to climb.
*Results are based on early analysis of Experian Boost's impact on a sample of consumer FICO® Scores.