We all live in an economy run by loans. People are used to buying things with credit cards or money borrowed from the bank. They worry about paying off their debt later. Such a strategy works most of the time. Unfortunately, the current economy is not in the best possible shape. Because of this, sometimes people struggle to pay off their debt. You already know that missing just one payment on your student loans or credit card leads to a bad credit score. That is something that you want to avoid.
What Is a Credit Score?
The basic idea of the credit score is to provide credit bureaus with the opportunity to estimate the risk of giving you a loan. It is a number that varies between 300 and 850. The higher your credit score, the more likely you are to pay off your debt entirely and on time. People with low credit scores have a hard time borrowing money. That’s because lenders consider them unlikely to pay in full and stay up-to-date with their monthly payments.
You ideally do not want to be in that category. Imagine that you’re going to buy something, but your savings account says that you cannot afford it. You could wait until you’ve earned enough. Or there is an alternative: You could take out a loan and acquire the item that you’ve been hoping for immediately. You do not have that option with a bad credit score. Or, at least, it will be a lot harder for you to be approved for a loan.
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How Do Credit Bureaus Estimate My Score?
Calculating a credit score uses a rather complicated formula, but there are several primary components that you can keep track of:
35% – Credit History
All dealings that relate to loans and credit fall into this category. Credit bureaus will take all the information about your financial history dating back to 10 years ago. If you have paid everything on time and your checking accounts give a good vibe, it’s OK. You have a much higher chance of qualifying for a loan because your credit score will be high.
30% – Utilization
Basically, this means how you use your credit capabilities. Let’s say that your credit card has a monthly limit of $1,000. If you only use a few hundred dollars each month, then your utilization factor is high. You are less likely to overspend. To know how to live within your means is essential to lenders.
15% – Length of Use
This refers to how long you have used credit. To qualify for a loan, you need a credit history of at least six months. The longer you have been dealing with credit well, the better it is for your credit score. You will get a high number even if the period in question has not been that long. This category is not as relevant as the overall credit history and utilization.
10% – New Applications
If you fill out a new loan application, credit bureaus will consider it. This practice may sound unfair, but it makes sense. If you need to apply for a personal loan two or three times a year, you most likely do not manage your finances well. Lenders need to know that.
10% – Types of Credit
This category is easy to explain. The kind of loans that you take matters to the lender. They might be personal installment loans, short-term loans, long-term loans, payday loans, mortgages, title loans, and so on. Each of these loans is distinct and may demonstrate different aspects of your financial habits.
No Credit or Poor Credit?
Your credit score may be zero. It’s hard to achieve that solely through poor management. Lack of credit score usually means that you have not taken out a loan yet and don’t have a credit card. In some respects, it’s better to have a zero-credit score rather than a bad one.
Poor credit score means that you cannot manage to service your debt. Late payments, too much credit card debt, and too many loans at once can be reasons for your low credit score. The best thing that you can do is take measures to avoid getting your credit score too low. Anything can happen, we know. You may hit a rough patch financially.
How can you get out of this situation? There are ways to obtain the money that you need through bad credit loans. There are other options, too. Here we are going to take the time to look at the various options that you have in this difficult time.
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First Things First
We need to determine one thing before we move on to the options before you: How low is bad credit? The answer, unfortunately, differs from lender to lender. The usual rating that is considered weak is anything below minimum credit of 629. From here on, there are also subcategories. Poor credit loans are considered to be loans that people with scores between 600 and 650 qualify for.
Very poor credit loans are available to people with minimum credit scores varying between 500 and 599. If your credit score is even worse – 499 or less – you can only hope for extremely bad credit loans. When a credit check shows that your score is in some of these categories, you need to start looking for bad credit loan options available to you. The alternatives that exist out there should be attractive to you, too.
A Variety of Loans Are at Your Disposal
Bad credit loans are those that are available to people who do not fare well score-wise. There are different types of loans, however. Learn about them so that you know which one is the best fit for your unique individual needs. Loans fall into two main categories: personal loans and business loans.
Personal loans are those that you take in your capacity as a private citizen. You can use them to buy a house, a car, or other property. Some people resort to personal loans to pay for travel expenses or even to improve their current credit score. Personal loans are suitable for the economy because they increase the buying power of the population.
You should not forget, however, that when you take out a loan, you need to pay it back. Don’t go for it unless you are sure that you can afford to make the payments. Additionally, you should be particularly careful when bad credit loans come into play. Your score is already weak. There is no need to make matters even worse.
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Business loans are the next category that we will consider. They concern loans that you take in your capacity as a business owner. The money acquired with these loans is for running the day-to-day operations of your enterprise. You can use them to buy equipment, hire additional staff, expand your office premises, and so on.
Business loans make sense if you are a start-up and want to gain capital for your idea. Bad credit score can prevent you from obtaining this crucial funding. But thanks to bad credit loans for businesses, a lower credit score is not such a huge problem.
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How Can I Get a Bad Credit Loan?
There are several ways in which you can approach the situation. Which one is best? No one can tell you with 100-percent certainty. The issue is that your financial situation is unique. Thus your requirements may differ significantly in comparison to the person next to you. That is why you need to know your options. Consider every pro and every con carefully. The chances are that you will not make a mistake if you make an informed decision.
Get Someone to Cosign the Loan
A cosigned loan is one that you take together with someone else. In your particular situation, the cosigner needs to have a better credit score than you. They could be a family member or a friend of yours. Lenders are more likely to give money to people with bad credit scores when there is someone to guarantee that they will get the money back. The cosigner adds assurance that you will pay off your debt. There are two things to consider in this situation.
Home Equity Loans Can Come in Handy
A home equity loan is a sensible way to compensate for your bad credit score. The basic idea of home equity is that you put your assets as collateral for the loan. Those assets can be your car, your house, or your apartment. Lenders tend to take things easy when a potential borrower offers assets as collateral. They are much more likely to overlook bad credit in such a case. However, there is an inherent risk to this particular strategy.
If you are unable to service your loan, you will lose the property. But if you are desperate to receive some money, this is an easy way out. We would recommend resorting to home equity loans only when you are 100-percent certain that you will be able to make your monthly payments on time. Meet your loan terms, and you should not have a problem. Just don’t forget that you stand to lose a lot with home equity loans.
Secured Loans Give You Options
A home equity loan is a type of secured loan. There are other types that you can make use of in a time of need. Fixed assets such as stocks, bonds, cars, and boats can come in handy when you wish to leverage a loan. That’s why the loan is called secured. You put something valuable that you already own as a guarantee for the money that you will receive. This way, the lender will be more likely to overlook your bad credit history. Not to mention, they will give you better loan terms.
You are demonstrating that you are ready to pay your debt to the lenders. The trick is that you need to put forward something precious. The lower the price of the collateral, the less money you are going to receive. There is logic to that principle, and there is no way to overcome it. If you are confident enough in your earning ability for the future, you can gamble on a secured loan. It will work as long as you possess valuable fixed assets. Don’t bother applying when you have a loan on your car or a mortgage on your house.
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We live in an era when you can do everything that you can think of online. Borrowing money is no exception. Some online lenders specialize in dealing with consumers with bad credit history. The good news is that the field is relatively new. E-banks are trying to compete with traditional ones. It is a fierce race, as you can imagine.
The customer stands to benefit from such an arrangement. Online lenders are in a position to offer some pretty sweet deals to borrowers with bad credit history. A traditional lender will want a credit check on your credit record. An online lender is more likely to overlook the data that this type of document holds. Your education and employment history is what matters to them the most.
Problems with Online Lenders
The problem is that it is sometimes hard to choose a genuinely legitimate online lender. Regulations are few, and scams lurk around every corner. Stay alert. If a deal sounds too good to be true, it’s likely a scam. Check names that have proven themselves reputable over the years, such as Earnest, Avant, Best Egg, and others. When you are trying to make a deal for a bad credit loan with an online lender, do your research. Carefully read online reviews, loan terms and conditions, and any other information that you can obtain. It is a lot of work, but you should make an effort if you want what’s best for you.
When you are trying to make a deal for a bad credit loan with an online lender, do your research. Carefully read online reviews, loan terms and conditions, and any other information that you can obtain. It is a lot of work, but you should make an effort if you want what’s best for you.
Ways to Avoid Online Lenders Scams
There is no way to guarantee that you will not run into a scam when applying online for a bad credit loan. This process presents inherent risks that you need to be ready to take. They are compensation for the security of traditional financial institutions such as banks. Since you cannot count on traditional banks for a loan due to your low credit score, you need to accept the risk.
Don’t worry! We are here to help you. There is no single formula to calculate if online lenders are legitimate or not. But you can be on the lookout for the following signs that you are dealing with a scam. The first sign is a pre-approval guarantee. No lender worth their salt will tell you that you are approved for a loan before they look at your application.
If you see an ad saying that you can be sure that you will be getting the money that you need, don’t trust it for a second. That is a method used by scammers to attract desperate people with poor financial skills. You are better than that. The same goes for lenders who require application fees. That is strictly forbidden by law. An origination fee is another matter, but application fees are something you should avoid. They are a clear sign that you are dealing with someone who wants to make a quick, dishonest buck.
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Wait, There Is More!
These are not the only two signs that should activate your scammers’ alert. The way you communicate with a potential lender should tell you if they are legitimate or not. In the case that the dialogue feels more like talking to a chatbot than a real person, run fast and run far. Legitimate lenders care about the ease with which their customers can get in touch with them and have their problems solved.
Scammers often resort to scare tactics, as well. Any pressure that they put on you should be a red flag. Be careful. Your future is at stake here. We know that you might be under a lot of stress due to your financial situation. But that does not mean that you should let other people pressure you into a decision that you honestly don’t want to make. If you feel that the lender that you are considering is employing those tactics, cut off contact immediately.
There are other signs that you are dealing with scammers. Unusual names are one of those. If the name of the company that you are looking at sounds outlandish, it might be a red alert. The same goes for names that sound like those of legitimate companies with a good reputation. Such tactics mean that the owner of the brand is trying to scam clueless customers. You would not buy a pair of “Adibas” sneakers, would you? In that case, it makes no sense at all to borrow money from “the Bank of the Americas.”
Why Are Online Scams So Dangerous?
Online scams waste your time and can make you lose money. If you fall for the loan application fee trick, you will be giving a small amount to someone who is looking to profit from your gullibility. Those thieves need a thousand or several thousand people like you. When you add up the sums, scammers make a pretty penny.
That’s not the most significant danger, however. Most illegitimate online lenders will request (and receive) valuable personal information. They can use your social security number and other sensitive data to harm you. There is an underground market for stolen private information that is rather profitable. Like most scammers on the Internet, false lenders are after that type of information.
Go to Family and Friends
There is, of course, another option closer to home. A bad credit score can make it impossible to get a loan from a bank or another financial institution. The problem is that sometimes borrowing money is the only way to get out of dire straits. Friends and family can help you with short-term cash or an investment for your business idea. You should tread carefully, though. There is a considerable risk of asking relatives for money.
You should resort to this method only if you are sure that there isn’t going to be a problem. You should make an extra effort to guarantee that you will be able to pay the loan in full. Doing so in a timely fashion is highly advisable. Talk to friends or family members. You are asking for a loan earnestly. Make sure that you are all on the same page. Sometimes it is better to struggle to improve your credit history. It will be worth it if you can avoid putting essential relationships into jeopardy. Unsecured personal loans like these may be the road to trouble.
Credit Unions May Be the Best Way to Go
Moving past your bad credit history and getting a loan anyway takes a little creativity sometimes. Joining a credit union might not be the first thing that comes to mind in this situation. This course of action has proven itself a viable option. Credit unions are abundant in the United States. Typically they aim to serve representatives of certain professions. There are such that cater to veterans of the U.S. military, teachers, police personnel, and even dockworkers. If you are eligible for membership in a credit union, take the necessary steps to join. You will notice that it becomes immensely more comfortable to get a loan.
What is more, the main idea of a union is to protect the interests of its members. That means that you can count on an additional layer of protection against predatory lenders. Credit unions usually have a list of trusted financial institutions that they work with all the time. They will help you get in touch and fill out the necessary application forms.
Credit unions may have a more subjective way of determining if someone is eligible for a loan. Banks and credit bureaus want to assess your credit history and credit records. On the other hand, your credit union representative would like to know that you truly belong in the pool of members. The stronger you identify with your profession, the more likely you are to get a bad credit loan through a union.
Peer-to-Peer Lending Is All the Rage These Days
That is one more of the marvels of the Internet. Online lenders are companies that run like ones. Conversely, peer-to-peer lending represents an online platform through which people lend money to other people. The person giving the money is called “a direct lender.” It sounds a bit risky. That’s because it is. Both parties in the transactions that take place gamble a lot. There are, however, legitimate web platforms that accommodate peer-to-peer lending. The process happens as safely as possible on them. Check out SoFi, Lending Club, Prosper Marketplace, and Perform. Those are the most popular peer-to-peer lending platforms at present.
The conditions on your loan may vary depending on the lender. Some are more understanding of people with a bad credit score. Others would like to examine your credit record first. We do not consider peer-to-peer lending the best option that you can hope for right now. It is on the table, though. If you find it attractive to join the digital age in such a fashion, give it a try. There are risks to avoid and rewards to reap – just like with any traditional lender.
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The Best Loans for People with Bad Credit Scores
You need to make sure that you understand the risk of seeking a bad credit loan. You may get your credit history in worse shape than it already is. There is the danger of losing your house or other assets. Even the possibility of not being able to get a loan due to your credit score is real. That is why you should start searching for the right option early. Do it carefully, and don’t cut corners. Under no circumstances should you rush to the easiest and best-sounding deal. Before you start, ask yourself:
- What will I be using the money for exactly?
- How bad is my credit score?
- What is my debt-to-income ratio?
- How much money do I want from the lender?
- How much time will I need to repay the loan?
Once you have the answers to these essential questions, you can move on to looking for the best bad credit loans for you. We are here to give you several suggestions that are going to narrow down your search considerably.
Looking to Buy a Home?
The economy is in such a state that many people with bad credit are looking for mortgage options. If you are one of those people, don’t worry. There is still a chance for you to find a way to buy a home for yourself and your family. New American Funding is a lender that we recommend that you look into for starters. They will be able to facilitate a loan for you, as they offer a wide range of options. New American Funding has jumbo mortgage loans and conventional ones. An FHA loan and VA loans are also on the table.
The excellent news is that you need a credit score no lower than 580 to qualify for those loans. Most other lenders that you will find require a score of at least 620 to give mortgages. A downside exists, too. The lower your credit score, the higher the interest you will have to pay. That is not a surprising fact because lenders want a guarantee that they will be getting at least some of their money back.
Since you have no other options, however, New American Funding is by far the best option to take right now. Of course, the alternative is to improve your credit score. Then you will be able to seek financial assistance from another, more traditional lender.
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Debt consolidation is a complicated matter that few people have working knowledge in today. You probably know a thing or two about it. A debt consolidation loan means that you take out a loan to cover other loans. There is a good chance that we are talking about the investments that created your bad credit score in the first place. Usually, lenders would hesitate to give money to people with bad credit in the form of debt consolidation.
Fortunately for you, some have no problem with bad credit loans of this type. Marcus by Goldman Sachs is one of those companies. The thing about this particular lender is that they offer many options that are available even to people whose credit check shows low numbers. The praise that Marcus by Goldman Sachs receives often addresses the flexibility and the good deals that they offer to all people.
Types of Debt Consolidation Loans
There are different types of debt consolidation loans depending on your exact credit score. If it exceeds 660, you may qualify for FICO9. If it is over 580, look at VantagePoint. You will not waste too much time checking if you can get money from one of those programs. The loan application process is relatively simple. What is even better, you can complete this entire process online. Do not forget that since we are talking about bad credit loans, interest rates are high.
The more money you need to borrow, the more you will have to pay. People with lower credit scores also suffer from penalties in the form of high-interest rates. That’s how it is with this type of debt. You will have to find a way to live with it. Unless, of course, you manage to improve your credit in the meantime. One good thing is that Marcus by Goldman Sachs does not charge you unnecessary fees. Origination fees, late payment fees, and other miscellaneous charges are not going to be a problem for you. You can even arrange for payday loans from them.
Americans cannot live without their cars. That is why auto loans (knowing how to refinance an auto-loan, too) are a necessity. That is particularly true for people with bad credit. You need your vehicle to reach work, earn money, and pay off your debt. It is as simple as that. Feel free to check out Capital One. They offer great auto loans for people with a bad credit score.
While your credit report has the potential of being a real hindrance to buying a new car, Capital One has your back. This financial institution is ready to take a gamble on you. That is true even if your score is as low as 500. Financing can vary from $4,000 to $40,000. Amounts like these should be adequate to buy a car with an auto loan. The repayment terms vary.
In many cases, you will have as many as 72 months to pay off your debt. Just make sure that you make your monthly payments on time. Do that even if you have to grab your credit card. It will be much worse to suffer from the penalties for being late on a bad credit loan.
Capital One has a user-friendly loan application process for personal loans. It is no surprise that you can fill out this application online. Your credit rating will not suffer if you apply for an auto loan through Capital One’s web platform. That is good news, especially in the context that we are dealing with here.
All-Online Bad Credit Loan Lenders
Numerous companies operate entirely on the Internet. It comes as no surprise that people with bad credit who are looking to borrow money can find lenders online, too. Online lenders are perfect for short-term cash loans. A few choices that lie before you include:
- Bad credit loans
- OneMain Financial
These are all legitimate financial institutions. If you need short-term cash, the online lenders that we point out will help you. Many of those target people with less-than-perfect credit. You should expect high-interest rates, especially on payday loans. Read the repayment terms carefully before you borrow. The important thing that you are after is to eliminate surprises. You cannot afford them.
Before You Apply
Don’t rush into filling out a loan application right away. You already know that any form that you fill can damage your credit score. Loan applications appear immediately on your credit report. You need to be sure that the lender will pre-approve your loan. Otherwise, you will be getting into even more trouble. There are three essential steps to take to get pre-approved for a loan. First, you need to figure out your financial situation.
Decide what payment you can afford to make each month. Then research the lenders who meet your requirements for a personal loan. Does OneMain Financial offer bad credit loans to people with a score like yours? Ask them directly. Most online lenders have helpful client support members who will be happy to talk to you. There are approval applications that you should complete. Once you’ve done that, you can hope to get a bad credit loan – that is, without further damaging your score.
What If My Application Is Denied?
There is a distinct possibility that you are not going to get a bad credit loan the first time that you try. The reason is simple. Even institutions that specialize in such business transactions do not want to give money to just anyone who asks. You need to be able to prove that lending you the sum requested is not a bad idea.
How do you do that? Simple, apply again. If you are lucky enough, the bank or financial institution will ask you to come to their office for an interview. That’s your time to shine. This meeting is your opportunity to demonstrate that despite your poor credit score, you are a legitimate borrower. You need to show your reliable personality. Unfortunately, that’s rarely enough for institutions such as banks.
Bring Along Some Proof of Your Reliability
- Tax returns
- Anything relating to your credit report
- Evidence that you own valuable assets
- Job history
- Bank account statements and savings account statements
- Recommendations from an employer, landlord, etc.
The more paperwork you present, the better the impression you will be able to make. One thing that you should know about banks is that they love paperwork. So if you want to make a solid case, go into the office prepared. If you are a nervous interviewee, check your stress at the door. The person in front of you is not your enemy. They want to know whether or not they should trust you with their institution’s money.
The questions that you can expect are simple enough, and all relate to the personal loan that you want. Therefore, you will be able to answer them quickly and without hesitation. Remember: No matter how nervous you are, it will all be over soon. When you are prepared and do your job right, you will surely enjoy a favorable outcome.
If All Else Fails
Bad credit history is sometimes a problem that you will not be able to overcome. When your score is particularly low, lenders will not want to gamble on you. So what can you do? A simple solution follows: improve your credit score! That is a skill that every American should learn in school. All the history and biology in the world cannot prepare you for dealing with financial institutions.
We can, however, make you a perfect borrower. All you need to do is follow some pretty basic steps. You don’t have to reinvent the wheel. Just follow these simple steps, and things will turn out fine.
Don’t Spend All Your Credit
You most likely possess a credit card. Most people have limits on their credit cards to keep spending at bay. If you want to increase your credit score, you need to improve your game. Keep the amount of money that you borrow (loan amounts) through your credit card at 30% of your limit. Such actions appear on a credit record.
Lenders don’t need to see that you are in the habit of keeping your credit spending low to have a positive impression of you. It is not the end of the world if you max out your credit card. Just make sure that doesn’t happen every month. Approach your credit as you approach saving money. That will create habits that you will find useful in other areas of life as well.
Make Payments on Time
The practice of making timely payments applies to both your credit card payment and monthly payments on a preexisting personal loan or business loan. Nothing hurts your credit score easier than being late on a payment. Let’s not forget that loans come with more than an origination fee.
There are interests and penalties in the picture, too. Once they start to accumulate, it is easy to lose track. It will become harder and harder to keep up with your obligations. That’s how bad credit history comes into being.
On the other hand, if you are on time every month, your score will improve. It’s a fool-proof strategy. Not to mention, making timely payments is also a healthy way to go even if you do not have a poor credit score.
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Don’t Forget: Patience Is a Virtue
Credit history is one of the determining factors when it comes to your score. The longer you tackle specific loan amounts, the better your credit score. So, if you wait long enough, you should be fine. As you keep up with your monthly payments in the meantime, you will also learn to manage your debt better as time passes. Nothing can beat experience when financial management is at stake. Additionally, never forget the basic principles of debt management. They will help you with your credit history immensely.
You can see that having a bad credit score is not the end of the world. However, there are ways to take out loans even when you have messed up a little. The important thing is to keep your eyes on the prize. The risks and pitfalls that you will come by along the way should only make you more alert.
Do you have any recommendations and tips about bad credit loans? We want to hear about your experiences.
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