Few things can create the kind of anxiety and even embarrassment as applying for a loan when you have a bad credit score. Lenders have to poke through all the skeletons in your closet to see if you qualify for a loan…and let’s face it, who hasn’t had some kind of blemish (or worse) on their credit report? In fact, some people don’t even bother to apply, thinking that their less-than-stellar credit score will wreck the entire process.
But that’s not always the case. The truth is, even if you have bad credit, there are still ways to get the affordable loan you need.
Try a Secured Loan
Also known as a collateral loan, this type of loan is backed by your personal property: a car, a house, or other tangible assets. Lenders are more likely to approve these loans because they know they can take possession of the assets to cover their losses if the loan is not repaid. Since the value of the collateral covers the amount of the loan, your credit score is less important when qualifying for a loan of this type.
With secured loans, it’s more important than ever to make consistent, timely payments. If you default on the loan, you will lose your collateral.
Online Personal Lenders
Many online personal lenders use artificial intelligence (AI) and other advanced predictive models to incorporate more than just credit score when making loan offers. Though your credit score still plays a role in qualifying for a personal loan, hundreds of other factors can now be considered to prove an ability to repay the loan.
When you apply with Credit Direct, we use our proprietary lending technology to ensure a fast and fair loan application process. We look at additional factors such as employment and income history and able to approve loans for applicants with credit scores in the 500 range. Credit Direct makes money simple. Our online application takes less than five minutes, and best of all it does not affect your credit score.
Join a Credit Union
Credit unions are a good option for borrowers with bad credit. A credit union is a not-for-profit organization, so they don’t exist to answer to shareholders but to their membership. Earnings are paid back to members in the form of better savings and loan interest rates. They also are focused on providing a high level of member service and might be more open to reconsidering a loan decision. However, you do have to join to become a member of a credit union. Each credit union has different membership requirements to join, which can include geographic area, employer, school, or other community affiliation. You can search for credit unions near you using the locator tool at mycreditunion.gov.
Find a Co-Signer
Another option for borrowers with bad credit is to get a cosigner with a good credit score to apply for a loan with you. With a cosigner, the interest rate for the loan will be calculated to include the credit rating of the person who agrees to sign the loan documents with you. That person becomes a “guarantor” in case you don’t make payments and will be equally responsible for repaying the loan. Take great care when deciding who to ask to be a cosigner, especially a close friend or family member, because if you fall behind on payments, their credit score and history will suffer for it too.
Avoid Payday Loans
Many people with poor credit fall into the trap of payday loans, one of the most dangerous kinds of quick money loans. A payday loan is simply an advance on your income that must be paid back when you receive your next paycheck. Though there is no qualification process aside from verification of income and employment, the Annual Percentage Rates (APR) of these loans are as high as 350%!
And remember, a payday loan is an advance against money in your existing budget, not extra funds that one typically needs for a loan to cover things like sudden medical bills or other emergency costs. Taking out payday loans can put you in a cycle of debt from which there is no escape.
Before you apply, check your credit score for quick fixes
You’d be surprised at how many mistakes may be on your credit report…and how easy it is to fix them. Just like anyone, the three credit bureaus – and the companies that report to them – can make mistakes, and these mistakes can end up damaging your credit score.
Step one: acquire your credit report. You are entitled to one free report each year by using Experian’s FreeCreditReport.com site, or ask your bank if they provide free credit scores, or simply pay for a report that features data from all three reporting companies (Experian, Equifax and Transunion).
Step two: go over that report with a fine-tooth comb. Look for the following:
- Erroneous addresses – places you never lived
- Wrong names (seriously, if your name is Smith, Jones or Brown, there is more than one of you out there
- Collections you already paid off
- Accounts you already closed or simply never opened
- Unfavorable items older than seven years
The process to have the credit bureaus remove these items mostly involves writing a letter as explained in your credit report. It’s worth the time and effort as removing a few erroneous items can increase your credit score by dozens of points or more.
The bottom line: don’t stress and start rebuilding your credit one step at a time. Even with poor credit, you do have options now. If you would like to check what options you have with Credit Direct please call us at 866-414-4198 or apply now.