Do You Need a High Credit Score to Qualify for Pre-Settlement Funding?
Even if you're not familiar with how credit agencies work, how credit scores are calculated, or what your current credit score is, you probably know that credit scores are important. Your credit score determines much of your financial potential, dictating which loans you qualify for, the rate you qualify for, and even some aspects of your personal life, such as where you can live.
But do you need a high credit score to qualify for pre-settlement funding? If so, how much of a credit score do you need? And if not, what does it take to qualify?
Why High Credit Scores Are Typically Required
Let's start by looking at credit scores and why they're typically required. Banks and other lending institutions need to make sure they minimize risk and maximize their rate of return; otherwise, they wouldn't be in business very long.
If they lent out money to anyone who asked, they would have to deal with so many defaults, the business would suffer catastrophic losses and close down.
There's no perfect way to determine the level of risk presented by an individual. There are people who, on the surface, appear to be extremely well-qualified for a loan, who end up defaulting on that loan.
There are also people who have sketchy financial backgrounds who are perfectly capable of paying loans back. Even with that in mind, credit scores are one of the best tools we have to quickly and easily assess a person's financial responsibility and reliability.
Credit scores are designed to assign a number to each individual, quantifying their fiscal responsibility and the likelihood that they'll eventually pay back what they borrow. The higher your credit score, the more responsible you’re seen to be. And because credit scores are kept and calculated by major financial institutions in the United States, these scores are considered highly reliable even by our biggest banks.
Credit scores are typically calculated using the following information:
- Number of accounts. Generally speaking, the more accounts you have, the lower your credit score will be – though a higher total credit limit is a good thing.
- Account mix. The type of accounts you have will also come into play.
- Used vs. available credit. How much debt do you have and what are your credit limits? The lower your debt ratio is, the higher your credit score will be.
- Credit history length. Creditors will look at your oldest account to determine how much credit history you have. The longer you've been building your credit, the better.
- Payment history and reliability. Your payment history also matters. If you’re consistently late with payments, or if you miss several payments, your credit score will drop.
Obviously, this is not a comprehensive analysis of your fiscal responsibility or your financial future. But for practical purposes, it has historically worked well.
Credit Scores and Pre-Settlement Funding
What about credit scores as they relate to pre-settlement funding?
This may come as a surprise to you, but most pre-settlement funding providers don't require you to provide information on your credit history. They are not going to check your credit score, and your credit score is not going to affect how you qualify for pre-settlement funding in any way.
Why is this the case? Do pre-settlement funding providers not care about risk?
Of course they do. They just calculate risk in different ways. Pre-settlement funding functions like a loan in some ways, but in other ways, it's more like an advance. You're going to receive an injection of capital based on the likelihood of your case winning and the projected amount of your final settlement. Then, when your settlement has arrived, you'll be responsible for paying back whatever you borrowed plus fees.
Note that the lender getting paid back is not contingent on your ability to make money, nor is it contingent on your ability to budget. All that really matters is that you eventually win a settlement and get access to the money necessary to pay the advance back.
Because of this, risk calculation ignores credit scores and financial history in favor of your likelihood of winning. Pre-settlement funding providers will talk directly to your lawyer about the details of your case and your chances of winning. They’ll also look at cases like yours in the past to determine how much of a settlement you'll eventually receive. Once they have this information, they can confidently determine how much capital they can provide you.
Why Personal Finances Matter
Though your personal finances won't stop you from taking out a pre-settlement loan, you should recognize that your personal finances are important and could still affect your financial future.
When you receive your pre-settlement funding, you'll be able to use the funds in any way you choose. Smart borrowers budget the money carefully, distributing it where they need it most and covering their essential living expenses. Some people choose to use their funds on frivolous things, like buying a new car or going on vacation. While these indulgences are technically allowed, you must remember that you're going to be responsible for paying this money back when your settlement arrives. If you're not careful, you could end up in debt because of this.
One more important note on this front; just because you don't need a high credit score for a pre-settlement loan doesn’t mean that your credit score doesn't matter. If you have a low credit score, you should put together a plan to try and increase it.
It’s true; you don’t need a high credit score to qualify for pre-settlement funding. Your credit score isn’t even going to be checked. All you need to provide initially is your name, the name of your law firm, and a few other small pieces of information. Apply now to get started!