Many people ask about the minimum credit score needed for a debt consolidation loan. Lower monthly payments sound very appealing for consumers struggling to stay on top of their obligations.
There is one big problem. Large unpaid balances hurt credit scores, making it very difficult for many people to qualify. In addition, you need to show sufficient reliable earnings in order for the lender to approve your application.
Fortunately, there are alternatives. First, weigh the minimum credit score requirements when applying to banks, peer-to-peer lenders, or finance companies for a traditional debt consolidation loan. Then consider whether your qualifications fit a settlement program as the best way to lower your monthly payments.
Higher Credit Score Needed for Debt Consolidation Loans
A much higher minimum credit score is needed to be eligible for a debt consolidation loan. Now you must convince a bank, peer-to-peer lender, or investor to send you a large amount of money, based on your promise to pay it back according to terms.
Request a debt consolidation loan here. In order to make the process worthwhile, you need to qualify for a low-interest rate and/or extended repayment terms – both entail decent ratings. You need at least one, and preferably both to wind up with lower monthly payments.
Online non-prime personal loan companies specialize in helping consumers stretch out repayment terms. Connecting with a wide network of finance companies improves your chances of finding a willing partner.
Demonstrating sufficient income and job history can help you overcome a poor credit history or score. You must also establish that you are a real person, and have a bank account, and the means to send checks through the mail or electronically.
The lowest credit score required for a credit card debt consolidation loan varies by type of lender and the quoted interest rates. Some sources will approve only applications with excellent grades while others specialize in approving consumers with fair qualifications.
- Traditional banks such as Bank of America, Capital One, Chase, Discover, and Wells Fargo expect a credit score of 720 and above to pay off credit card liabilities.
- Peer-to-peer lenders serve a broader market. They will accept applicants with credit scores of 640 and above in order to retire revolving balances.
- Finance companies serve applicants with less stellar qualifications. They may accept applications with credit scores below 640.
Credit card debt consolidation companies will project your Debt-to-Income (DTI) ratio. This percentage divides the expected monthly payment by the applicant’s gross monthly income. Longer repayment terms translate into smaller monthly payments and a lower DTI.
The credit score threshold to consolidate student loans works differently. Graduates seeking to refinance their obligations have two sets of rules to follow.
- Federal government student loan consolidations have no credit score requirement because the lender remains the same. Borrowers simply complete the free Federal Direct Consolidation Loan Application and Promissory Note. This enables them to combine multiple obligations into a single payment with a blended interest rate.
- Private student loan consolidations have higher credit score requirements because a new lender enters the equation. In addition, the repayment period and interest rates may change. Also, these new lenders will want to verify that recent college graduates have secure employment and reliable future earnings.
The bottom credit score required to obtain a medical bill consolidation loan follows the same parameters. However, make certain that you really want to take this step before applying.
Refinancing medical bills has more negatives than positives.
- Will incur interest expenses whereas medical bills will not.
- May also pay an upfront origination fee.
- Restart the statute of limitations on the obligation.
- May have less time to repay the combined loan.
- You can update a delinquency to “paid as agreed.”
- Collection agencies will stop hounding you
No Credit Score Needed for Debt Consolidation Programs
No minimum credit score is needed to qualify for debt consolidation programs. This means that you may be able to lower your monthly payments regardless of your ratings and your income level. Unfortunately, most readers will find that they are not eligible to borrow more money.
Free debt consolidation quote. You may want to explore another alternative that provides a more realistic chance of helping you meet your goals – which is to get out from under your overwhelming obligations. Most readers face this dilemma.
- High balances hurt credit scores.
- Low credit scores make it hard to be approved.
- If approved you will pay higher interest rates and have shorter repayment terms.
- Projected monthly payments are a function of two key variables.
- Interest rates
- Length of repayment terms
- High balances translate into a risky Debt-to-Income (DTI) ratio.
- Poor DTI makes it hard to be approved
- Lofty DTI translates into higher interest rates
Any Credit Score
Any credit score will do for a debt consolidation program. There is no specific number required. The reason is that you are not borrowing money from a bank or peer-to-peer lender or other investors.
The primary criterion is that you owe more than $10,000 in unsecured obligations, which includes credit cards, personal loans, and unpaid medical bills. If you meet this threshold, your chances of having a respectable rating are not very good – especially if you are struggling to make timely payments.
Debt consolidation loans for bad credit cannot make this promise. A settlement program often qualifies more applicant because the criteria fit consumer needs better.
You do not have a threshold credit score requirement with a debt consolidation program. You begin combining your payments into a single account held in escrow by the company managing the process.
Once the balance in the escrow account reaches a sufficient balance, the company begins advocating on your behalf. The objective is to reach a settlement for far less than what you owe.
Financial hardship is the secondary eligibility criteria. The person must be behind on payments, otherwise, the lender has no incentive to accept less than the full amount owed. People behind on payments often have bad credit. This is the one instance where a credit score of 650, 600, or 500 could work in your favor.
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