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Articles » Low Credit Score Loans | | What Is The Difference Between A Low Credit Score Loan And A Regular Loan? |
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When you go to a lending agency such as a bank or mortgage broker, one of the first things that they look at before approving you for a loan is your credit score. Your credit score, or FICO score, is calculated based on information that is contained in one or all three of your credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion. These scores are categorized into levels that lenders use to rate your credit worthiness. The range is from 300-850 and the categories are as follows:
750-840: Excellent
660-749: Good
600-659: Fair
300-599: Poor (Low)
Any score under 600 is considered a low credit, and any applicant with a low credit score will either be denied or offered a low credit score loan, usually a loan with a higher interest rate or one that needs to be secured by existing funds or assets. Those with excellent or good credit will normally be able to get prime or below prime interest rates, but those with lower credit scores will have to pay more for the extension of any kind of credit.
One positive aspect of taking out a low credit score loan at a higher interest rate is that by making your payments on time you will actually improve your credit score . You can also take out a consolidation loan to pay off any outstanding debt that is affecting your credit rating. Credit cards charge interest rates between eighteen and twenty-five percent, so even paying a higher interest rate on a low credit score loan can improve your cash flow if you use the funds you borrow to pay off your credit cards.
Another type of low credit score loan is one that is guaranteed or insured by the government. A good example of this is an FHA loan offered by the Department of Housing and Urban Development (HUD). HUD guarantees the loan and takes the risk away from the lending institution. The down payment and interest rates on these loans are typically more affordable than a regular loan for those with good credit scores.
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