Loans can be difficult to obtain if you have bad credit. Although it can be more difficult to obtain a loan if you have bad credit, it is possible.
First Things first
Check your credit score before you begin looking for a lender. You might not have as high a FICO score as you think. Here are the steps to get your FICO score for free:
Discover offers its customers a free credit scorecard that gives them the FICO score. You can still open a Discover bank account if you aren’t eligible for a Discover card or you aren’t certain you will qualify.
FICO Score Open access allows any lender, mortgage servicer or credit card issuer to offer a free review of your FICO scores. Information about the most important factors that could affect your scores will also be available. Contact institutions that participate in FICO Score Open Access to get your FICO scores.
How to Check Your FICO Scores?
Your FICO score is a snapshot of how your financial history has been. This score is used by lenders to quickly decide whether or not to lend you money.
Your FICO is made up of these factors:
- History of payments: 35%
- Total amount owed: 30%
- Credit history length: 15%
- Credit mix: 10%
- New credit 10%
Your payment history is the most important thing. A low FICO credit score could be due to late payments, collections accounts, poor credit history or owing a lot of money.
Personal loans can be accessed with good terms and low interest rates if your FICO credit score is 670 to 800. Personal loans with scores between 580-669 will have more fees and interest. Lenders consider scores between 300 and 579 “very poor”. Although you may still be eligible for a loan, expect to pay high origination fees and interest rates.
Low FICO scores could be due to credit reporting errors. The AnnualCreditReport.com website provides free credit reports from Equifax, Experian, and TransUnion every 12 months as a result of federal law.
Let the credit bureau know immediately if you discover mistakes. You have 30 days to either prove the information correct or delete it from your credit report. You can improve your FICO credit score by correcting mistakes. This will allow you to get personal loans more easily when you need emergency cash immediately.
Here are some ways to get a personal loan with bad credit
Although bad credit won’t be a problem for a personal loan, you will need to work harder to get the money you need.
- Always shop around. Don’t accept the first personal loan offer. Look for hidden fees such as origination and early payment penalties. You don’t need to get a loan with terms that threaten your financial future, even if you have poor credit. You should pay particular attention to origination fees, early-payment penalties and other charges that can make it difficult to repay your personal loan.
- Co-signer: A co-signer can be helpful, even if you have bad credit. Co-signers should be responsible for making timely payments. A mistake could stop you from achieving a higher score or damage your co-signer’s credit.
- Instead, consider a credit-card instead. It is easier to be approved for a card if you only need a few hundred dollars in a short time. Although you may end up paying higher interest rates and fees to open an account, credit card issuers will guaranteed credit card approval no deposit or low credit scores of as low as 500.
- Visit your bank. Although it is easy to get a personal loan online, you might have better options at your bank or credit union. Call or visit the bank to speak with a loan officer. Ask if they offer personal loans for those with bad credit ratings. To help repair damaged credit, many lenders offer credit-building loans with shorter terms.
- Secured loans: Your lender may approve your application if you have collateral. When you speak with your bank’s loan officer, be sure to inquire about secured loans.
What can a personal loan do for my credit?
You have the chance to improve credit scores by borrowing money from a lender that reports your payments to credit bureaus. You can improve your credit score by providing new information. It’s more important to keep current with your credit cards and loans.
A late payment can cause your FICO score to drop, making it more difficult to get credit in the future. One payment that is more than 30 days late could have a significant impact on your FICO score within a matter of weeks. You will need to make on-time payments for months on all your accounts in order to get your scores back up.
Conclusion
Bad credit should not prevent you from getting the money you need. It’s important to shop around and understand the terms of any personal loan. Understanding your credit history is the first step in finding a personal loan at a low rate. This knowledge will help you find the right loan terms to help reach your financial goals.