This guide outlines how to get a loan with bad credit history, and not let it impede your progress in business or career.
Getting a loan with bad credit
Loans are the way out for many business owners and people in unexpected unsavoury financial situations. But getting a loan could be challenging when there’s bad credit against a potential borrower’s history. Have you found yourself with bad credit while needing loans? The good news is that some lending organizations are ready to offer loan with bad credit histories.
This guide shows the process involved in getting a loan with bad credit. It is not a secret that the process could be quite challenging, but with plans like Montgomery personal loan offerings, borrowers with bad credit can access financial assistance to meet their urgent needs.
What is a loan with bad credit?
Bad credit loans refer to short-term financial assistance for people who want to borrow money but have a poor credit history. They’re called bad credit loans because the prospective borrower’s bad credit score makes lenders demand very high-interest rates when they need a loan.
However, having bad credit or getting a loan with bad credit doesn’t spell doom for the borrower’s financial situation. When properly managed, a bad credit loan could mean the beginning of a financial turnaround. It could raise your credit score and make you a better prospective borrower.
Is it the right move for you?
There’s a caveat here, however. Bad credit loans might not be the best solution to everyone’s negative financial situation. That’s because of the often higher interest rates and short terms (often between 12 to 60 months). So intending borrowers want to be sure if taking a personal loan is in their best interest and if they’re ready to stick by the terms from start to finish.
Here’s why. Taking a loan with bad credit could mean you already have accounts with missed payments. Using one loan to offset another isn’t the best debt management plan. Instead, a better preparatory practice could be to get to the current debt’s roots before borrowing more. Adding extra loans is like adding fuel to the fire of bad credit. The best solution to bad credit might be to take no loan (and consider other potential debt-relief alternatives).
Here’s an overview of the steps involved in getting personal loans with bad credit in the US.
- Begin by knowing your credit score to see if you’d need a ‘bad credit loan’ and how much you need to raise the score towards improving your financial status.
- Apply for a loan from lenders such as banks, internet lenders, or other credit providers.
- Supply the required papers to the lender, showing your income and expenditure to find out how much interest rates you may have.
- Review your lenders’ offers, comparing their rates and terms before selecting your preferred offer.
- Once approved, you get funding and start working to repay debt and improve your credit score.
One way of improving your credit score significantly is repaying your debt in bits regularly every month. In the meantime, remember that step 1 suggests checking your credit score above. Next, we see an explainer of what is considered a bad credit score in the US.
What exactly is a bad credit score?
After checking your credit score, you’d come up with a set of three whole digits between 300 and 850. Admittedly, there’s no official record of when a bad credit score starts. However, many lenders consider a borrower a high risk if their credit score is below 650. That means people with a credit score below 650 would mostly have high-interest rates when they want a loan with bad credit history.
Here’s a rundown of what the spectrum looks like across the board.
- Excellent: 760 to 850
- Very Good: 700 to 759
- Fair: 660 to 699
- Poor: 620 to 659
- Extremely Poor: Below 620
Many times, the only crucial factor lenders check before approving a loan is the borrower’s credit score. When computing your credit score, credit bureaus consider five different parts, each carrying a unique sub-factor in deciding your overall credit score. They include:
The payment history (35%): Here, the bureau considers how regularly you make monthly payments. If you make on-time payments monthly, it means good for your payment history. Conversely, missing as little as only one payment could mar your credit score.
Amounts owed (30%): This factor considers how much available credit you use monthly. The credit score dips if the owner uses over 30% of their credit limit.
Length of credit history (15%): Here, the bureau checks how long the borrower has had a credit history. You want to note that closing accounts, especially with unpaid balances, harm your credit history.
Credit Mix (10%): Here is where the various credit forms a borrower has come into focus. Does the borrower have other credit forms, like credit cards, mortgages, auto loans, student loans, etc? If they have a commendable history dealing with various credit forms, it’ll boost their credit score. Meanwhile, defaulting on one or more other credit forms affects the credit score.
New credit (10%): When a borrower opens a credit card account very often, it’s considered bad financial practice as the borrower comes across as desperate. The insight here is not to apply for a credit card, except if necessary.
Steps to get a loan with bad credit history
It could be challenging to secure personal loans on good terms when you have a bad credit rating. But it’s possible. Following are some helpful tips for people with less than perfect credit history who intend to get a personal loan:
- Check out bad credit lenders: No matter what, there are bad credit lenders with credit offerings to consumers with bad credit scores.
- Raise your credit score: Avoiding wrong financial habits can help raise or at least maintaining your credit score.
- Agree to a shorter loan term: You could get a better loan rate by agreeing to a shorter repayment term. Usually, the shorter the loan term, the lower interest your prospective lender charges.
- Have a consistent income source: Also, informing potential lenders that you’re in a favourable state to repay by showing them recent improvements in your financial situation is good practice. When potential lenders see you have a reliable income stream, they’d readily assume you’d be able to repay your debts readily.
What if your application is denied?
There are different reasons a lender might deny a loan with bad credit history — or even why you may reject a loan offer. But that doesn’t spell the end of the road to getting a personal loan. Here are a few things to do in such situations:
- Ask if another arrangement is possible with the lender that rejected your application.
- Consider other lenders who may better suit your financial needs.
- Consider borrowing from your 401(k).
- Speak with friends and family for financial assistance.
Conclusion
Having bad credit is not the best. But that doesn’t mean you won’t be able to access personal loans or other financial assistance. Bad credit loan providers have loan offers that individuals with poor credit scores can enjoy. If you must get a loan with your bad credit score, consider applying to a bad credit lender while working to repay and improve your credit score.
