How much money can I borrow with bad credit?
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A poor credit score is a FICO score below 670 or a Vantage score below 661. No matter the credit scoring model you prefer, a less-than-stellar score can make qualifying for a loan and getting the amount you need difficult.
However, there are lenders that cater to subprime borrowers that offer loan amounts ranging anywhere from $1,000 to $50,000. Keep in mind that the maximum amount offered will vary based on your creditworthiness and the lender’s underwriting criteria.
How lenders determine how much you can borrow
Each lender has its own set of eligibility guidelines that determine whether you qualify, your APR and how much you can borrow. Lenders that cater to those with poor credit often have relaxed eligibility criteria, which makes it easier to get approved.
Lenders will conduct a hard credit check to look at your credit report when deciding your eligibility. Your credit report houses all of your repayment information and credit history, including any missed payments, open accounts and your debt-to-income ratio.
Credit score and history
Most lending institutions won’t accept borrowers with scores under 670; however, loans for those with less-than-stellar credit have minimum credit scores as low 560 or may not even consider scores when looking at an application.
Your credit score is undoubtedly one of the most important eligibility factors when applying for a loan. Lenders take a deep dive into your credit history to get better insight into your score, which is primarily made up of factors like how much debt you have and whether you pay your bills on time.
The higher your score, the more ‘trustworthy’ you appear to lenders and the more you’ll be allowed to borrow. Good credit displays a history of repaying your debts and shows that you haven’t taken out more debt than what your income allows. Therefore, the better your score, the more you can borrow; for example, Earnest has a maximum borrowing cap of $250,000 for those with excellent credit (800 and above).
Each lender will have differing criteria when assessing eligibility and default risk, but lenders may look at different financial factors when it comes to loans for poor credit. If the loan is specifically advertised to those with bad credit, it’s likely that the lending institution will look at factors other than just credit score.
Upstart, for example, offers unsecured loans up to $50,000 and doesn’t have a credit score requirement. It does have a minimum income requirement of $12,000 though, so that will be considered over credit score. Lending Point is another lender that also bases eligibility on a number of factors, rather than looking strictly at score.
Your debt-to-income (DTI) ratio is the percentage of how much you owe monthly vs. how much you earn annually. To calculate your DTI, add up all of your monthly debt payments, such as student loans, auto loans, mortgage payments and credit card balances and divide that number by your gross monthly income.
Ideally, most lenders prefer DTIs under 36 percent, but some will accept ratios as high as 50 percent. The lower your DTI, the more trustworthy you appear to a lender, which may give you a better chance of getting the funds you need.
If your DTI is well over 50 percent consider dedicating time to paying down your existing debt before taking out another loan. If you need the cash immediately, look for lenders that don’t have a DTI specification or accept high ratios.
How to get a loan with bad credit
Getting approved for a personal loan with bad credit may be difficult, but it’s not impossible. Look for lenders that specialize in poor credit loans or use a qualifying co-signer to increase your chances of getting approved.
While it may seem tempting to apply as soon as you find a lender you qualify for, read the terms and conditions first to check for any hidden fees or requirements not advertised on the primary website. Also, if the lender offers prequalification, take advantage of it before starting an application.
Prequalificaiton allows borrowers to check their eligibility odds and predicted terms with no credit impact. Since loans for those with a thin credit history often come with higher rates and unfavorable terms, it’s best to prequalify and compare potential offers before making a final decision.
How lenders measure eligibility
To determine how much you can borrow – and your general approval odds – the lender will use a process known as underwriting. An underwriter’s job is to access the nitty-gritty of your financial history to let the lender know how much of a ‘risk’ it could be to take you on as a borrower.
When an underwriter looks at your credit report, they’re generally looking for good credit and a low possibility of default. However, when it comes to loans with bad credit the default risk will still be assessed, but the underwriting specifications may be more focused on factors like income and education when determining risk.
To increase your chances of getting offered the maximum amount, conduct a thorough review of the lender’s qualifications and your finances. If you meet all of the requirements, you’re more likely to be approved or offered a larger loan amount.