How Poor Credit Can Prevent Loan Approval

Poor Credit and Personal Loan Approval

Debt, bills, emergencies and unexpected expenses, there’s no end to the spending. Sometimes your finances can be outgoing faster than the incoming, and that can leave you short on funds. 

When things don’t stack up, sometimes you might not have the money to make ends meet and have to make choices, like which bills to pay. Well, this can be a problem later when you have late payments. At some point, this can affect your credit score, and ability to get approved for personal loans in the future.

At some point you might be considering a personal loan for a variety of reasons, from debt consolidation to life events like a wedding, or funeral, to a home renovation or a medical bill. Whatever the reason, if late payments have impacted your credit score in the past, it can be difficult if you need a personal loan someday.

Can I Get a Personal Loan Approval with Poor Credit?

Your credit score is important to lenders as it helps them determine what level of risk you might be as a borrower. This is sometimes referred to as creditworthiness. Maintaining a healthy credit score can be valuable to you for those times that you might need a loan, whether for bills, emergencies or just about anything else. It can even affect you more than you might realize and impact your ability to rent, get a mobile phone, and even get a job. 

While you can get a loan with poor credit, it means you’ll have to pay more to borrow. If your credit score is regarded as fair, you might pay in the mid to high teens or more for an interest rate, but if your credit score is lower, the rate Canadian lenders offer might be considerably more. 

But the answer is yes, even with a poor credit score personal loan approval is possible. As you might already know, you just have to pay more when you have poor credit. Your debt-to-income (DTI) ratio can be another factor affecting your ability to get approved for a personal loan.

How Does a Personal Loan Affect My Credit Score?

When applying for a loan, like with many credit products, your credit score will experience a small dip, but this fluctuation is normal and usually self corrects in a short matter of time. So long as you continue making payments on time and don’t do anything out of the ordinary that might have your credit score take a turn for the worst. 

Canadian credit bureaus know that when people are comparing personal loans there is typically a short period of time where they will see a number of credit inquiries on their end. So it’s fine to compare, so long as you don’t go overboard and it’s for a short duration of a week or so. 


When is the Right Time to Apply for a Personal Loan?

This answer can vary, as there isn’t a single one that suits all situations. It often comes down to timing, but the following can be a few factors that might help you determine if the timing for a personal loan might be right for your situation:

  • Your credit score allows you to get what you think are reasonable rates/terms
  • Your situation leaves you with few options and you need the money now
  • The rate you are eligible for is better than some of the debt you currently have now

Another consideration is just how quickly you need the funds, and where your credit score currently is. There are certain thresholds with different lenders, and if you are not far off and can wait, it can be worthwhile to put your plans on hod if an option so you can focus on improving your credit score and getting better interest rates. While it’s often 650, 700 and 750, some lenders might also provide preferred rates at intervals like 670 or 720. The point being, if you were 10-20 points away from any of these intervals, it can be worth your effort to focus on improving your credit score for better rates.

While improving your credit score is not a quick process, you should know what it is before you start comparing personal loans. This way, you can decide whether you want or need to improve it, or to just go ahead and apply.


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