How to qualify for a fair credit loan

Earning perfect credit is no easy task. In fact, less than 1.5 percent of people have one, according to Experian. But having fair credit—a FICO score between 580 and 669—doesn’t mean getting a loan is impossible. Rather, it just takes one extra consideration to make sure you still sign up for a loan with competitive rates and terms.

As you begin your journey to find a fair credit loan, consider the following tips to get the best possible loan for your needs and creditworthiness.

Use a cosigner

Adding a co-signer increases your chance of approval and better rates as your overall creditworthiness increases. When looking for a co-signer, it’s best to add someone with strong credit and a close relationship, as it incurs risk on your part.

Adding a co-signer helps the lender feel confident that you, or your co-signer, will in fact repay your loan in full and on time.

Request loan prequalification

Prequalifying is one of the easiest ways to get a firm idea of ​​how much your loan will cost. This gives you a special advantage as a fair credit borrower because you can see if you qualify. By prequalifying, you can confirm your chances of loan approval without the drop that a difficult credit pull would cause in your score when you formally apply.

What is the difference between prequalification and preapproval?

Pre-approval is a more in-depth process where the lender likely does heavy credit pulling and is typically associated with buying a home, while pre-qualification is a simpler process that only provides an idea of ​​your monthly payment.

Pay off current debt, especially credit cards

Like your credit score, your debt-to-income ratio serves as a measure of your ability to repay a loan. If you’re short on time to finance, paying off your debt before a loan application will make you much more attractive to lenders. Use a debt-to-income calculator to determine where your DTI currently stands.

Credit cards are especially important to pay off and keep low. Revolving credit, especially the ones you use a lot and carry a balance on, can affect your ability to qualify when your credit is on the right end of the spectrum.

Explore loans from a local bank or credit union

If you have a history with a local bank or credit union, these institutions are likely to offer more lenient rates to borrowers they trust. So even if your credit isn’t perfect, your personal relationship with the bank could work in your favor.

If you are having difficulty signing a personal loan due to fair credit, consider other alternatives.

  • Low APR credit card balance transfer. One way to consolidate debt is with a 0 percent APR credit card. In this case, you simply move the balance on your card to ensure that interest doesn’t accrue and, in turn, you have a period, usually 12 months, to pay off your debt.
  • Loan or line of credit with mortgage guarantee. Homeowners can dip into the cash in their home equity with a home equity loan or home equity line of credit (HELOC). While you can use the security as collateral, remember that late payments can result in home foreclosure.
  • Salary advance. If you have an emergency expense, an advance on your next paycheck can be helpful. Just be careful: you’ll be short of that money when your next check arrives, so you’ll need to budget accordingly.

While it may be more challenging to secure a competitive rate as a fair credit borrower, it is still doable. The process just requires a little more thought so that you can still sign the best loan for your budget and needs. Consider starting your journey at a local bank or credit union or work toward paying off the debt before you apply to ensure the best rates and terms.