The first hurdle to overcome is imposed by the P2P lending companies.
For instance, Lending Club requires a minimum FICO credit score of 660. Prosper requires a minimum Experian Scorex PLUS credit score of 640. The amount that you can borrow and the interest rate on your P2P loan are also determined by your credit score.
Before you apply for a P2P loan, you should purchase a FICO score to see where you are standing now. (Since companies may use different credit scoring models, the FICO score is a good choice because it is considered the industry standard.)
If you don’t meet the P2P lending minimum requirements, you’ll have to take measures to improve your credit profile before applying for a loan. (You cannot avoid this catch-22 nature of the lending industry.)
In the six to 12 months prior to your loan application, you can do the following to boost your credit:
- Pay down debt. It’s odd that you have to pay down debt to qualify for debt consolidation. But, every little bit will help to raise your credit score.
- Stop paying with credit cards. This is a no-brainer. You don’t want to be racking up more debt when you’re trying to apply for a loan.
- Ask for a credit limit increase. By raising your credit limit, you reduce your debt-utilization ratio (total combined debt divided by total combined credit limits). It factors into your credit score. Keep in mind that asking for a limit increase may affect your credit score, as card companies may or may not pull your credit report.
- Do not apply for any other new line of credit. Every time you apply for a loan, your credit score is dinged. Multiple applications for a loan makes you look desperate for money.
- Dispute credit report errors. Credit bureaus can make mistakes and have errors show up on your credit report. Having these errors removed will increase your credit score.
After six months, pull your credit score again to see if it has increased. Once it’s up to par, you can apply for a P2P loan, which is an art in itself.