How to Apply for Loans Based on Credit Score

Your credit score, often called a FICO score, falls within a range of 350 and 850. Your individual credit score is one of your most valuable assets. A high score may mean that you can qualify to borrow more money at a lower interest rate. A lower score means you will be offered less-favorable terms, if you are offered a loan at all. Most financial institutions use risk-based pricing, which means the interest rates and terms of their loans are based on your credit score.

Things You'll Need

• Copy of your credit report
• Internet access
• Proof of income

Instructions

Find the right loan

1. Request a copy of your credit report. Trans Union, Equifax and Experian are the three major credit-reporting agencies who compile your credit report based on the repayment history of past debts. You are entitled to one free credit report each year. Visit www.annualcreditreport.com to see what lenders will use to determine the terms of your loan. You should occasionally monitor a report from each agency as your score and history can differ from agency to agency.

2. Determine the strength of your credit score. While most lenders will not tell you how they rate credit scores, it is still helpful to know where you stand. A score of 700 or above means you fall in the "exceptional" of "very good" category and have a high probability of qualifying for one of the lowest rates. A score between 620 and 700 is still considered "good," but you can except to see some increase in your rate. Below 620 will make you popular with some banks, as they can charge you higher rates. Unfortunately, the benefit is one-sided.

3. Find the right loan for you. Bankrate.com compiles rates from around the country for several types of consumer loans, including credit cards, auto loans and mortgage loans. Simply select the type of loan you need and enter your zip code for a selection of local lenders.

4. Visit your preferred lender's web site or a local branch, if possible. Download or request their latest rate sheet. If the institution bases their rates on credit score, it will be clearly disclosed.

5. Apply online or in-person with a loan officer. Be sure to bring proof of income and any information on collateral you may be using to secure the loan.

6. Compare loan rates if approved by more than one lender. Be sure to factor in all aspects of the loan terms, including fees and penalties, before moving forward. If declined, ask the lender for advice on how to improve your credit score and make a future application more favorable.

Tips & Warnings

• If you know your score ahead of time, you can discuss possible rates with your loan officer prior to submitting an application. This can be helpful as each credit check by a lender can lower your credit score.

• Consider local community banks or credit unions when shopping for the best rate. They often offer more competitive terms than national lenders.

• Shop around, but avoid contacting too many lenders. Several credit checks in a short amount of time can negatively affect your credit score.

References

• Annual Credit Report
• Credit Score Range
• Loan Rates