Credit Reports & Ratings Articles


Unsecured Loans - Credit Scores and Income

Lenders of unsecured loans generally use an applicant's income level, credit score, and credit history to determine the feasibility of loaning money to an individual. This is the exact opposite of what happens when an individual applies for a secured loan where the home's equity is the primary determining factor.

The best chance of receiving approval for the loan is to have a good credit score, a reliable source of steady income, and a reasonable request for funds. The credit score alone will not get you approval for the unsecured loan. However, if it is good enough, it can lead to more favorable interest rates and terms. Since a higher risk is involved when no home equity is used as collateral to secure the debt, the applicant's income level takes on even more importance.

Credit Scores and Income

Whenever an individual applies for an unsecured loan, it is always better to have a good credit score. This is especially true if a large sum of money is requested. Typically, the individual's entire credit history will be reviewed for any signs of serious financial trouble including defaults, bankruptcies, or a troubling payment history full of delinquencies.



Applicant's who have good credit histories and scores can expect to receive offers for home loans with affordable monthly payments and reasonable repayment terms. Some applicants, those with the worst credit scores, can obtain unsecured loans with high interest rates and terms that are less than flexible. This last type of unsecured loans includes payday and cash advance loans.

Unsecured Loans and Income

Applicants of unsecured loans need to show a reliable source of income Not only must the income be sufficient to meet the monthly payment obligation of an unsecured loan, but also, it must also come from a reliable and steady source such as a job that has been held for the last year or so.

In general, you should not ask to borrow a sum greater than 30% to 35% of your current income. Everyone has numerous expenses in addition to the cost of daily living. If you ask for a sum that is equal to 50% or more of your income, most likely, you will not receive approval for the loan.

When Your Income and Credit Score Don't Qualify You for an Unsecured Loan

Unfortunately, some individuals will not be able to show a reliable enough source of income or a high enough credit score to get them approval for the sum of money they wish to borrow. When this occurs, they can incorporate one of several strategies. The first step is to ask for a smaller sum of money. If that doesn't improve the situation enough, you can get a do-signer for the loan. However, if you decide to take on this strategy, you need to make sure that the co-signer has a good credit score as well as a reliable source of income.