Some people turn to personal loans when they have money problems, but if you have bad credit, getting a loan can …
Some people turn to personal loans when they have money problems, but if you have bad credit, it can be difficult to get a loan. If this is you, then you may be relieved to know that some lenders are willing to work with borrowers whose credit history is not ideal.
Below are some of the challenges and opportunities faced by borrowers who are wondering: “How can I get a personal loan if I have a bad credit history?”
[Read: Best Personal Loans.]
What is the minimum credit rating for a personal loan?
Each lender has its own criteria, including risk tolerance, when establishing minimum credit rating for personal loansays Rod Griffin, Senior Director of Education and Advocacy, Experian Credit Bureau.
“Usually when you think of subprime borrowing, 680 is what we think is almost top-notch,” he says. “So you may not be suitable at this stage.”
An estimate of around 700 should help you get a personal loan, “but probably not at the best rates,” says Griffin. “To qualify for the best conditions, you usually need to score 750 or more points.”
Lenders also look beyond your credit rating to other factors that can affect your ability to repay the loan, Griffin says, including yours:
In general, the lender wants to evaluate how well you are repaying the borrowed money before giving you a personal loan.
“If you have a history of non-payment of debts – for example, a large number of late payments or bills to collect payments – this will complicate the task,” he says.
Which loan is best for bad credit history?
If you have a low credit rating but are still hoping to get a personal loan, be aware that many lenders specialize in helping borrowers with bad credit history. You can start by looking at the US News Guide to best lenders for bad credit history…
But before you apply for a personal loan, ask yourself if it’s really in your best interest, says Todd Christensen, education manager at Money Fit by DRS Inc., a nationwide nonprofit lending advisory agency. The best loan in case of bad credit may be no loan at all.
“If you take out a personal loan with a bad credit history, you probably have collection or payment bills that you have already missed,” says Christensen. “Using one loan to pay off another is not a debt reduction plan. This is debt. ”
Instead, try to get to the bottom of your debt and credit problems before borrowing, he says. “If you have bad credit, adding another loan is like adding fuel to a bad credit history,” says Christensen.
Generally, people with bad credit should consider other options before considering a personal loan, agrees Lauren Anastasio, a certified financial planner at SoFi.
“If you have bad credit, a personal loan – provided that you are eligible – can cost a lot more than other types of financing,” she says.
[Read: Best Debt Consolidation Loans.]
How to get a good loan if you have bad credit?
Getting an unsecured personal loan on good terms when you have bad credit may be tricky, but possible. If you need a personal loan and your credit is unstable, you should:
Look for lenders with bad credit. “For better or worse, there are lenders across the country willing to offer personal loans to consumers with poor credit ratings,” Christensen says.
Improve your financial health. Try to get rid of bad credit habits in order to raise or at least maintain your credit rating.
“Lenders find it boring to be very attractive: pay on time, every time, avoid big balance sheet fluctuations, keep balances low,” says Griffin. “Slowly and steadily, very attractive.”
Show that you have a steady source of income. If your financial situation has improved recently and you are waiting for your credit score To catch up, try to show lenders that you are well positioned to get a loan.
“If a personal loan is your best option, the best thing you can do is provide evidence of a stable and reliable income,” says Anastasio. “A reliable income stream gives the lender confidence that you have the resources to make payments.”
Agree to a shorter loan term. Choosing a shorter maturity period can give you a better rate. “Generally, the shorter the repayment period, the lower your interest rate,” says Anastasio.
Expect lower interest rates on personal loans with maturities of two to three years and higher rates on loans with maturities of five or seven years, she said.
5 alternatives if your app is rejected
Just because one lender has declined your application doesn’t mean you can’t get a personal loan, says Anastasio. Here’s what you can do:
Talk to the lender who turned down your application. Another mechanism may still work for the lender. “Start by talking to the lender and find out if he will approve you for a different amount or loan term,” says Anastasio.
Look at other lenders. Try to find a lender that is best suited to your needs and circumstances. “You can always shop,” says Anastasio. “The underwriting criteria will vary from one financial institution to the next.”
Consider borrowing from your 401 (k). According to her, this option does not require a credit check and should cost less than getting a loan from a bank. “But there can be tax consequences if you leave your employer before the balance is paid,” adds Anastasio.
Seek help from family members and others. Check local nonprofits for special loans or peer-to-peer lenders like Prosper. Another alternative is to seek help from small banks and credit unions, although a poor credit rating can limit your options.
Try to avoid the worst alternatives. Some people with bad credit may consider getting a payday loan and a title loan. But according to the Federal Trade Commission, both types of loans are expensive and can charge an annual interest rate of 300% or more, plus a rollover fee if you extend your maturity. You can also lose your car if you fail to pay off the title loan, even if you make installments.
[READ: Best Bad Credit Loans. ]
How to improve your credit score
Most of the ways to raise your credit score take time. Here’s what you can do:
Take care of late payments. Delays in payments are not the main reason for the deterioration of credit ratings, Griffin said. “If you have late payments, you need to pay them off as soon as possible,” he says.
Reduce your credit card balance. Height loan utilization rate “The percentage of total available credit that you use is the second leading reason people see their credit ratings drop,” Griffin says.
Lowering this ratio By paying off debt and resisting new spending, you can improve your credit rating. “When you get into the next billing cycle, you’ll probably see an improvement,” says Griffin.
Sign up for Experian Boost. This free program counts on-time payments for your cell phone, utilities, or even Netflix against your credit score. Griffin says 2 out of 3 people who participate in the Experian Boost program see an immediate increase in their results. Even if your rating increases by just a few points, it may be enough to move your credit rating from satisfactory to good. However, as reported by the Experian website notes“Some may not see improved results or chances of approval. Not all lenders use credit information that Experian Boost affects. ”
Check your credit report for errors or fraudulent accounts.… You can get free weekly access to each of your credit reports from three national credit bureaus at AnnualCreditReport.com… If you find anything inaccurate or incomplete in your credit report, the credit bureau and the company providing the information to that bureau should fix it free of charge. You will need to dispute the error separately with each credit bureau after dispute process…
Keep using your accounts. Lenders want to see that you take credit responsibly. Charge something from each card at least once every couple of months and then redeem, Griffin recommends.
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Can I get a personal loan with a bad credit history? originally appeared on usnews.com