A credit score is a number that lenders use to assess your risk and determine how much they’ll charge you for a loan. Unlike grades in school, credit scores fall within a range from 300 to 850 and have a significant impact on your financial life.
If you have a low 401 credit score, it can be difficult to get approved for a number of loans. But there are some things you can do to improve your credit score and find more options for getting the credit you need.
Overview of a 401 Credit Score
A 401 credit score is considered a poor credit rating by most lenders, and you’ll have a hard time getting approved for credit cards, auto loans, personal loans, or mortgages with one. However, there are some lenders that will work with you to help you build your credit if you can show a strong commitment to making payments on time.
One way to improve your 401 credit score is by applying for a secured credit card, which requires a security deposit. These cards usually have a low credit limit and a high interest rate, but they can be a good way to start building credit. You’ll need to pay your bills on time and keep your credit utilization below 30% to help improve your credit score.
Credit Card Options with a 401 Credit Score
You may be able to get approved for a credit card with a 401 credit score, but lenders are likely to consider you as a high-risk borrower and will charge higher interest rates and fees than borrowers with more favorable credit scores.
You could also consider a secured credit card that requires a deposit before you are issued a credit limit. These cards generally offer 0% introductory rates on purchases and can be helpful for consolidating debt.
Another option is to use your 401(k) to pay off credit card debt. This could save you a lot of money on interest and improve your credit score. However, it should be used carefully and only if other debt consolidation options aren’t working for you.
Auto Loans with a 401 Credit Score
Your credit score impacts your ability to get approved for auto loans and affects the interest rate you’re offered. The average credit score required to qualify for a car loan is 700 or higher, but some lenders will consider borrowers with scores lower than that.
When shopping for an auto loan, shop around for the best terms and rates available to you. Make sure you’re not getting suckered into any hidden fees or high APRs by paying close attention to your credit score, the Kelley Blue Book value of the vehicle you want to buy and other key factors.
If your credit score is too low to qualify for a car loan, you can improve your odds of approval by applying with a co-signer. Recruiting someone with a higher credit score and income than you to co-sign your car loan can help you get better rate offers from lenders.
Personal Loan Options with a 401 Credit Score
If you need a little extra cash, a personal loan can be a good option. It can be used for a wide variety of expenses, including home improvements, medical bills and vacations.
You can also use a personal loan to pay off high-interest debt. For example, if you have several credit cards with high APRs, a personal loan can help you consolidate these debts into one affordable payment.
There are many different personal loan options to choose from, but it’s important to take an honest assessment of your financial situation and borrowing needs before making a decision. For example, a 401(k) loan might be better for you if you have poor credit history and lower DTI, but a personal loan can be a smarter choice if you want to protect your retirement savings.
Mortgages with a 401 Credit Score
The good news is that a 401 credit score does not mean you can’t buy a home. In fact, there are several mortgage options available to those with this credit score.
The 401 loan option may allow you to qualify for a lower interest rate than you would normally get with a traditional mortgage. However, this type of loan does have some drawbacks.
For starters, a 401 loan does not increase your debt-to-income ratio, which is used by lenders to determine whether you can afford the monthly payments on a new loan. Likewise, a 401 loan won’t affect your eligibility for an auto or student loan either.