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 and late payments hurt credit scores. This makes 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 is an alternative.
Settlement programs have no minimum credit score requirement. People can move on to a debt-free life at a fraction of the cost, with little practical consequence to future borrowing power.
No Score Needed for Debt Consolidation Programs
No minimum credit score is needed to qualify for debt consolidation programs. With a settlement program, the person is not borrowing money. He or she combines monthly payments into a single escrow account. Once there is a sufficient balance in the account, the third party company contacts creditors and offers a deal.
Do you qualify for debt relief? A settlement program can actually reduce the amount of money you owe over time. Your creditors may agree to accept less than full payment.
The two criteria are a bad payment history, and obligations exceeding $10,000.
Bad Payment History
People with a bad payment history and a low credit score qualify for a debt consolidation program. This is the one instance where a credit score of 650, 600, or 500 could work in your favor. You must demonstrate financial hardship.
Creditors will agree to a settlement only with consumers who are unable to stay current on their bills. The must face the risk of losing the entire balance before agreeing to accept less than full payment. Therefore, individuals unable to make payment on time fit the profile.
- People with bad credit rarely qualify for a debt consolidation loan. Lenders decline borrowers unlikely to pay them back on time. Therefore, a settlement program is often the only option.
- The settlement process begins by combining payments into a single escrow account. This means that participants will continue being late on obligations for a period. This worsens the negative history displaying on your consumer report.
- The negative effect on your credit score rarely matters. Ratings are already too low.
Debt Above $10,000
People who owe more than $10,000 in unsecured obligations qualify for a debt consolidation program. Unsecured obligations do not involve collateral to secure the contract. Examples include credit card balances, personal loans, and unpaid medical bills.
People owing the most money often experience the most debt relief. The settlement company has the strongest bargaining position when the amounts outstanding are very large – relative to income.
- It is important to have a steady income to support payment into the settlement program’s escrow account. However, the earnings requirements are not as high as for a loan.
- High debt-to-income borrowers rarely qualify for consolidation loans. Lenders will decline new applicants when the monthly income is insufficient to support the projected monthly debt service. The more money a person owes, the larger the monthly payment will be.
Higher 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.
In order to make the process worthwhile, you need to qualify for a low-interest rate and/or extended repayment terms. You need at least one, and preferably both to wind up with lower monthly payments.
You need to have decent ratings and income to earn lower interest rates and longer repayment terms.
Request a debt consolidation loan here. 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
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