How low can you go and still get approved?By: Bill Rice
One of the biggest hurdles in getting a loan approval is your credit score. Often the lender pulling (i.e. requesting and reviewing) your credit score from a major credit bureau is the first step in any lending process.
Naturally, this leads to the question…
"Is my credit score good enough?"
This is often the major weighing question on most consumers' minds as they apply for a new credit card, buy a car, apply for a new mortgage, or attempt to refinance their current mortgage - creating a lot of unnecessary anxiety.
Let's see if we can relieve some of your stress.
How Low Can You Go?
Most credit scoring models range from 300 to 850.
Here's a little stress relief right off the bat - it's really, really hard to hit the bottom (i.e. 300) on this one. It's kind of like the ACT or SAT; you get some points just for getting your name right. In fact, you are more likely to have no credit score at all, usually because you have no credit history, than to have a 300 credit score.
Relief… you're probably not at the bottom of the barrel. Only 7 percent of the total US population is between 350 and 549. Just slightly above that mark and you are usually in the hunt for getting a loan.
Qualifying for Credit Cards
Credit cards are usually the easiest "loans" to qualify for regardless of your credit score. However, like all credit lending, the worse your credit score is, the higher your interest rate will be.
With credit cards, you can probably get a reasonable interest rate and credit limit with a credit score above 650. Below 650 and you will need to look into a secured credit card, meaning it is "secured" by your cash - sort of like a debit card.
If you're looking for a credit card to give you rewards or cash back, then you need to get that credit score above 700, preferably 725+.
Qualifying for a Car Loan
Qualifying for a car loan with a low credit score is not too difficult, but it will be more challenging than a credit card.
Like credit cards, you can probably find a way to finance a car with almost any credit score. The trade off will be a higher interest rate and potentially a hefty down payment up front.
In most cases, even with a low 500 credit score, you can come away with a manageable car loan. However, the interest rate will probably be above 10 percent and your down payment may be higher than you can afford without help from friends and family.
Wondering about the incredible deals you hear on the TV commercials? The zero down, 0 percent interest offers - those typically require a credit score above 700.
Qualifying for a Mortgage Loan
Now down to the hard stuff. Mortgage loans, because of large dollar amounts and many years of repayment risk, have much tougher credit requirements.
That being said, tough economic conditions and a stagnant housing market has created some special opportunities in affordable housing and unique FHA financing that allows even a marginal credit score to qualify.
FHA mortgage loans are some of the most popular financing in the current mortgage market. With credit scores as low as 580, under specific conditions and with certain restrictions, you can probably qualify for a mortgage. However, these programs are constantly changing and often have restrictions - just like credit cards and auto loans.
To get more traditional mortgage loans, your credit scores need to get above the 620 to 640 range.
If you want to get the best interest rates, you need to raise your credit score into the 740+ credit score range. Are you starting to see a pattern here?
Credit Qualifying for Loans
Hopefully, this has given you some general guidelines for how low your credit score can be and still get a loan. Keep in mind that your lender ultimately determines their credit guidelines - so, as they say, "your mileage may vary."
Ultimately, your goal should be to continually improve your credit score by responsibly using and paying back the credit loans you qualify for and get. As a result, your future loans will be easier to qualify for and have better interest rates and terms.
What has been your experience? Did you start building your credit with a low credit score? What kinds of loans did you get first?
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