How Your Credit Score Changes the Amount You Can Borrow

Three things your credit changes

The Consumer Financial Protection Bureau describes a credit score as a prediction of your credit behavior, built from your credit reports, that lenders use to decide whether to approve you and to set the interest rate and credit limit. Most scores run from 300 to 850. For a personal loan, that means three separate effects:

• Approval: whether the lender makes any offer at all.
• Price: the APR, and with it the payment on any given amount.
• Size: the largest amount the lender will offer, partly through the APR and partly through its own policy.

Lendarbor does not publish score cutoffs, because lenders set and change their own. Lendmira describes what borrowers in each band tend to find, from bad credit and fair credit to good and excellent credit, and for no credit history.

How a higher APR shrinks the amount

Lenders cap your payment through your debt-to-income ratio, not the loan amount directly. Suppose your income and debts leave room for a $400 monthly payment and you want a 48-month loan. The table shows the largest amount that payment repays at each APR, and what $15,000 would cost instead. These are worked examples with a fixed rate, equal monthly payments and no fees, not offers.

Read the rows as two borrowers with the same income and the same debts. At 12% APR, $15,000 fits under the $400 room. At 30%, the payment on $15,000 is $145.08 higher and no longer fits; the most the same payment carries is about $11,109. Over the full term, the 30% borrower would also pay $6,963.84 more interest on the same $15,000.

Try your own rate in the borrowing room calculator, and see debt-to-income and loan size for how the $400 of room is worked out.

When a lender cuts the amount directly

Some lenders also limit the size of the loan for applicants with thinner or weaker credit files, apart from the rate. A first loan may be smaller than the payment room would allow, with a larger amount available later after a record of on-time payments. Others will lend more only with a co-borrower or collateral. Each lender's policy is its own; you see it in the offer, not in advance.

If an offer comes back smaller than you asked for, that is a counteroffer. Loan counteroffers explains how to judge one before you accept.

What in your credit report matters

Scoring systems differ, but the Federal Trade Commission lists the usual factors: whether you pay on time, including late payments, collections and bankruptcy; how much you owe relative to your credit limits; how long you have had credit; recent applications, which show as inquiries; and the number and types of accounts. Funditia covers how scores are built and how to improve one.

Sizing the loan around your credit

1. 1 Get your credit reports. You can see them free each week from each nationwide bureau at AnnualCreditReport.com; dispute errors before you apply.
2. 2 Prequalify where a lender offers it. A soft check shows a likely rate without affecting your score; see Lendmira on prequalification and LendCedar on soft and hard checks.
3. 3 Size the amount at the APR you are actually shown, not the lowest rate in an advertisement. If the payment does not fit, change the amount before you change the term.
4. 4 Consider a secured loan or a co-borrower if your credit limits the amount; Lendmira compares secured and unsecured loans.
5. 5 If you can wait, improve the score first. A few months of lower card balances can change the rate, and with it the amount.

Questions people ask