A low credit score is the last thing you want when searching for a personal loan. This isn’t surprising because your credit score is a great resource for lenders to gauge the risk of lending you money. And with a bad credit score, you’ll be forced to take out loans with excessively high-interest rates when you find yourself in a short-term financial fix and need quick cash.
On average, a bad credit score on the credit scoreboard is anything lower than a 650 score. But having such a bad credit score shouldn’t stand in your way of accessing a consolidated or emergency loan. If you’re wondering how this may be possible, read on as this definitive guide looks at useful ideas for getting a loan despite having bad credit. Let’s get started.
Table Of Contents
1. Compare Lenders
While it’s understandably difficult to be approved for a bad credit loan, you can still get approved for one by considering a lender specializing in the issue of bad credit loans. You must do this to avoid wasting your valuable time checking out lenders that won’t accept issuing you a loan with your bad credit score.
Because lenders are taking the risk of issuing persons with a bad credit score, they need certain information before approving the request. Examples of this information required include your income and employment status. In most cases, you’ll be required to at least have a minimum credit rating of 580. However, this isn’t a requirement for all lenders.
You shouldn’t opt for the first lender willing to take the risk with you and must start by first researching the interest rate they offer. Other crucial details are the lender’s repayment terms and whether the lender considers your debt-to-income ratio before accepting your loan application.
2. Choose A Low Loan Amount
Being approved for a personal loan depends on your credit score. This is why if you’ve got a bad credit score, you shouldn’t request a substantial sum of money from a lender to stand any chance of qualifying for the loan. After all, lenders are in the business of making money and aren’t willing to take a substantial risk lending you more than what you’d be able to pay back.
With this in mind, you should request a low amount from a lender to stand any chance of your loan getting approved. You should also take a small amount of money you can easily repay. Remember, the last thing you want is not being able to repay the loan, thereby negatively affecting your credit score.
3. Get Prequalified
Also known as pre-approval, prequalification is another excellent way to boost your chances of getting a loan despite having a bad credit score. Prequalification with your lender entails determining your loan qualification status. This process is simple as you only need to issue your lender with your details, and they can proceed to run a soft credit inquiry to determine your approximate loan offer.
Prequalification is advised because running a hard credit check helps you to get an approximate offer for a loan request from a particular lender. After the prequalification, the lender will present you with the loan terms, which you can choose to accept or refuse. They can also decide to decline your loan request altogether.
4. Get A Cosigner
Another effective way to boost your chances of getting a loan despite a bad credit score is to find a cosigner. The cosigner should ideally be someone with an excellent credit score, and they should accept to take over the loan repayment in the event you end up defaulting on payment.
Having a cosigner, besides helping you get a loan, also enables you to get favorable interest rates and loan terms. If you have a cosigner and make your loan repayments on time, your credit score will improve a lot.
5. Check Your Credit Score And Reports
Albeit knowing that you have a bad credit rating it is still important to go the extra mile and check your credit score as well as credit reports to ensure that there has not been a mistake in reporting. The three main credit reporting bureaus you should use to get your credit report are TransUnion, Equifax, and Experian. Each of them will provide you with a free copy of your credit report every 12 months.
With your credit report in hand, you’ll be able to find out whether there are any old debts or errors which might be affecting your overall credit score. You can then resolve these mistakes, increasing your chances of being eligible for certain types of loans.