It is pretty challenging to take out a loan on reasonable terms when you have bad credit. It’s because lending money to people with bad credit is considered a risk on the lender’s part. But there is still a way to get the funds you need, even with your current credit status.
Bad Credit and Your Ability To Take Out A Loan
Some lenders might consider a score that is lower than 600 as a bad credit score. It’s true when it comes to credit scores that usually range from 300 to 850. They lead to limiting your loan options and even some expensive loan offers.
Those with bad credit usually have several negative remarks on their credit reports. It includes some delinquent accounts or payments that are way past their due date or in collections. In addition, the bad credit score result conveys to the lender that the borrower is more likely to miss several loan payments in the future, which is risky on the part of the lender.
Lenders choose to limit their risk by only lending money to good credit borrowers. However, some lenders focus on offering bad credit loans as well. So if you have bad credit, you need to find a lender or even an online lender that works with less than perfect credit.
Tips You Can Consider
The following are some tips you can use to increase your chances of getting a loan even if you have bad credit:
Check Your Credit Reports and Scores
It is vital to check your credit report because some information in it is used to calculate your current credit standing. Moreover, you would want to make sure that your credit report has no negative remarks before you decide to apply for a loan.
There are three major credit bureaus: Transition, Experian, and Equifax that are not always accurate. So read your credit reports thoroughly; if you see any negative remarks, communicate with the information provider and the company that generated the report to correct the error.
Along with the credit score you have, other factors, like the debt-to-income ratio, can also affect the odds of your loan application approval. If you have a less than perfect credit score, a little bit of work can positively change the game.
Boost Your Credit Health
After getting a glimpse of your current credit health status, it is time to start improving it. Your credit score is calculated using various scoring models and credit factors. So, focus on the factors that make the most impact, like your payment history.
Below are the factors that tend to cause an effect on your credit score:
- Payment History: If you have missed or late payments, you can still turn it around. Start by making all of your current payments up to date, even for at least the minimum amount.
- Credit History: It is best to keep your debt amount lower than your total credit limit. The ideal percentage would be 30%. If you max out your credit limit, it will be harmful to your credit status.
- Credit Mix: Having different credit types can be advantageous if you handle them well. It will positively impact your credit score and can even attract loan offers with the best terms.
- Recent Credit: If you open or apply for several credit accounts, lenders might look at you as a risk. However, opening a new credit account only when needed and handling it well is a smart move.
Not every lender has the same rates and borrower requirements. Bad credit lenders can offer you a rate you can afford with helpful features, such as credit-building tools, a mobile app to handle your loan payments, and even fat funding. On the other hand, some are there to only rob you out of your money. So, it is best to compare and select the best.
Pre-qualification is recommended if you have bad credit. Pre-qualification can give you a glimpse of the loan amount, rate, and repayment terms you will be expecting. This process can help you decide if you want to take out the loan.
In a Nutshell
Getting a loan with a bad credit status can be very challenging. That is because lenders look at people with bad credit as a risk for lending money. However, several lenders offer bad credit loans. Also, if you don’t need money immediately, you can still work on improving your credit status and get a loan with a better offer.