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How credit scores influence personal loans
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How credit scores influence personal loans | Aleli Dezmen/Getty Images

How credit scores influence personal loans

A bad credit score can not only influence the likelihood of receiving a personal loan, it will most likely prompt lenders to offer a loan at a higher interest rate.

Personal loans are unsecured, meaning they don't have any collateral backing them.

"Lower credit scores show that you have had poor financial habits in the past, and that you may continue to carry those habits in your future financial obligations," says Netiva Floyd-Heard, a certified credit counselor with MNH Credit Solutions in Homewood, Illinois.

"If a lender decides to provide you with a loan despite this information, they will shelter themselves from the risk of you not making timely payments or not fulfilling the entire terms of the agreement, by assessing you a high interest rate," Floyd-Heard says.

"A person with bad credit could pay hundreds more in monthly payments, and thousands more by the end of the term of the loan in interest," she says.

To get a personal loan while having bad credit, consumers could explore options such as applying for a loan from credit unions, reconciling past debts, establishing a payback history, and using a co-signer.

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