What credit score is needed for a debt consolidation loan?
Borrowers looking to get a better interest rate and manage monthly payments may consider consolidating their loans, but it depends on your credit score.
Juggling multiple loans can make balancing monthly payments a headache. However, you may be able to consolidate various loans and credit card debtis under one account to make payments more manageable and lower your interest rate at the same time. Debt consolidation loan requirement guidelines for a minimum credit score vary for every lender.
While you may be able to qualify for a loan to consolidate all your loans with a credit score as low as 580, it may mean that you will have to pay a higher interest rate and could increase the overall amount you owe. A credit score of 660 or higher will give you a better chance of obtaining a debt consolidation loan where you don’t have to pay an origination fee as well as a lower APR. But even those with bad credit can qualify for a debt consolidation loan.
Things to consider about a debt consolidation loan
Before applying for a debt consolidation loan you’ll want to do some shopping around to check out different rates available for someone with your credit score. You can obtain a free copy of your credit report from AnnualCreditReport.com. Review it to make sure there are no errors, if you find any you should file disputes with the appropriate credit bureaus promptly.
Nerdwallet recommends checking with online lenders first, even if you later go with a credit union or bank, as you can pre-qualify, which will avoid your credit score getting knocked down by a hard credit check. This will give you an idea of the potential rates you’ll pay on the loan, the amount of credit that an institution would be willing to give and the terms of the loan. While it will take time, do thorough research into several lenders as it could save you hundreds if not thousands of dollars over the course of the loan.
Once you formally apply for the loan, the institution will do a hard check of your credit history which will lower your credit score by 10 points according to Bankrate, but that only lasts a year. Consolidating loans comes with both pros and cons, in the long run it could help improve your score, as long as you make timely monthly payments. But you will want to make sure that you with the new loan you are taking on that you will be able to manage the monthly payments to avoid putting yourself in deeper financial jeopardy.