When lenders approve personal loans, the only thing backing most of these loans is your commitment to make the loan payments.
Lenders measure your commitment from your credit history, and it's
your credit history that is used to determine your credit score. The
lender also will want to look at your income to determine if you can
afford to make the payments.
As with lenders of other forms of credit, personal loan lenders use
risk-based pricing. The worse your credit is, the higher the interest
rate on your loan. When applying for a personal loan, it's a good idea
to review your credit report and your credit score.
The myBankrate feature lets you review your credit report and credit score for free.
Borrowers with poor credit can see interest rates as high as 36% on
their personal loans. High interest rates can deter people considering a
personal loan, not matter why they want to take out the loan.
You won't get much bang for your buck, using a high interest rate
loan for debt consolidation, for example. I'd also argue against paying
36% to finance a vacation or to purchase a car.
The point is that keeping your credit history clean, paying as agreed
with no late payments, has real benefits when you need to apply for
credit.
The myBankrate feature lets you review your credit report and credit score for free.
If you have bad credit and the need for a personal loan isn't
immediate, wait for your credit score to improve before taking out the
loan. While most negative information drops off your credit report after
7 years, it doesn't take 7 years for your credit score to improve.
