There are certain letter grades that are assigned to the loans which define if the loan is high-risk or not. For instance, borrowers may get from A-credit loan to G-credit loan.
- A-credit is the best and presents minimal risk to the potential lender so it comes with the lowest interest rates.
- G-credit loan is very high-risk and burdened with the highest interest rates. The higher interest is given by loan providers as compensation for the increased risk.
Lenders and finance-related service providers use this loan grading system in order to qualify people who take out loans. Every borrower wants to qualify for an A-credit loan but there are factors that define which letter grade they will be assigned. The higher their credit score is the better grading they will get. Also, your credit grade may depend on some other factors such as the loan-to-value ratio, the debt-to-income ratio, the credit score as well as the payment history.
The lenders take FICO score when they consider the credit grade.
However, you should take into account that different lenders may assign different letter grades to the same borrower as they may have various grading scales. Some lending institutions consider a credit score higher than 720 to be assigned as an A-credit grade, while others may not. Make sure you check the detailed information with several potential lenders to select the most suitable option and get the highest letter grade possible.
The credit grading given to each borrower really matters as it distinguishes the loan terms and conditions. You don’t need to have an excellent credit score if you want to qualify for the top letter grade. However, your credit score is important in defying the terms of the loan and its repayment schedule. Longer loan conditions allow repaying the debt in smaller regular payments and keeping your good credit score.
If you want to qualify for the best letter grade, take into consideration:
- your payment history,
- the length of your credit history,
- the total debt owed,
- types of credit you’ve taken.
Try to boost your credit score before you apply for another loan. Make sure you’ve made all the previous loans or credit card payments so that you don’t have any debt which may lower your credit grading.