Credit Score Requirements for a Debt Consolidation Loan: What You Need to Know

What does my credit score need to be to get a debt consolidation loan?

What does my credit score need to be to get a debt consolidation loan? The answer is more complicated than you might think. To begin with, there are several scoring models that lenders may use to qualify borrowers. The most common is FICO, which is what we’re going to cover in this article. Their scores range from 300 to 850. Here’s the breakdown of what those scores typically mean:

  • 800-850: Exceptional
  • 740-799: Very Good
  • 670-739: Good
  • 580-669: Fair
  • 300-579: Poor

Other variables that factor into lending criteria are the applicant’s debt-to-income ratio and employment status. Assume you’ll need a steady job and verifiable income. Outstanding debt will be reported on your credit report, which is used to calculate your credit score, but the lender could dig deeper because credit reporting is often delayed by creditors.

Does an exceptional credit score (800+) guarantee approval?

As stated above, there are several factors that go into screening potential borrowers, so there’s no way to “guarantee” you’ll be approved because you have an exceptional credit score. That said, less than one in five Americans have a credit score in this range, so your chances of getting a debt consolidation loan are much better if you have excellent credit.

An exceptional credit score shows the applicant has a disciplined approach to handling his or her debt. Lenders put people like that in a “low risk” category because the likelihood of them getting repaid is high. Applicants with lower credit scores may have a history of late or missed payments. Lenders look for those red flags when evaluating loan applications.

Debt Consolidation with Very Good (740-799) Credit

There’s only a slight difference between getting approved for a debt consolidation loan with “excellent” credit and getting approved with “very good” credit. This range still puts you in a low-risk category with lenders, but the debt consolidation loan rates might be slightly higher. That’s dependent on what the current “prime rate” is, which the banks have no control over.

Moving into a higher credit bracket when you already have very good credit is more difficult than you might think. Some of the variables used to calculate a credit score, like “length of credit history” and “payment history,” only change as time passes. A late payment may stay on your credit report for years. Even if you make no other mistakes, it will still cost you a few points.        

Traditional Banks Want to See Good Credit (670-739)

Debt consolidation loan applicants with credit scores of 670 or above are categorized as “prime borrowers” by lending institutions. According to Experian, 67% of Americans fall in this category, but that number may be going down as economic conditions deteriorate and interest rates continue to rise. Consumers are finding it more difficult to pay their bills on time.

The best way to improve your credit score from “good” to “very good” is to pay off outstanding debt. “Amounts owed” is a variable that accounts for 30% of your overall FICO score. “Payment history” is 35% of your score, so making payments on time is also important. Using a debt consolidation loan to pay off credit cards could help you in both categories.

Does Fair Credit (580-669) disqualify you for debt consolidation?

If you ask at a traditional bank, 670 is the most common answer to the question: “What does my credit score need to be to get a debt consolidation loan?” That might be true at their institution, but there are online lenders who will approve you for a loan even if you’re categorized as a “sub-prime borrower.” A Google search will give you plenty of lending options to look at.   

Consumers in the “fair credit” category may be struggling with a heavy debt load or limited income. The United States Court system reported in July that bankruptcy filings were up 10% year-over-year. Many of those who are filing are in the fair credit category. Debt consolidation can help you avoid that by turning variable credit card payments into a low-interest fixed monthly payment.

Can you get a loan with poor credit (Under 580)?

Getting a debt consolidation loan with a low credit score isn’t a problem if you’re willing to pay the high interest and fees you’ll be charged for it. The problem with that is that the cost of the loan could be higher than the cost of paying off the current debt you already have. The average interest rate for credit cards is 28.05%. Poor credit loan interest rates are much higher.

Stop using your credit cards if your credit score is under 580. Make minimum payments on time and you’ll see your score slowly rise, improving your chances of getting approved for an affordable debt consolidation loan. You could also look into a Chapter 11 bankruptcy that will restructure your debt and make it more manageable.

The Bottom Line: What does my credit score need to be to get a debt consolidation loan?

Traditional banks and credit unions will tell you that your credit score needs to be 670 or above to get approved for a debt consolidation loan. Online lenders will do business with you even if your score is in the “fair” category between 580 and 669. Payday lenders will give a loan to anyone, but you’ll pay triple-digit interest on it. That’s not how you consolidate debt.

Check your credit score before filling out any loan applications. If your score is on the borderline between score brackets, work on improving it first. Pay down your debt with minimum payments for a few more months, don’t take on any new debt, and then check your score again. A few points could make a big difference in how much you pay in interest and fees.

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