In today’s financial climate, many people struggle to maintain a good credit score.
Late payments, going over your credit limit, unemployment, or other financial difficulties can put you in a situation out of your control. When the credit bureaus lower your score, it becomes more difficult for you to obtain loans and other lines of credit from regular lenders.
Fortunately, all is not lost for those with low credit scores. There are a number of bad credit loans available from some lenders, including us here at Associates Home Loan. These loans are meant to help you pay off debt, manage your monthly expenses, and rebuild your credit score to the point where you can receive conventional loans once again.
To help, here are five steps you can take to qualify for a bad credit loan—and toward financial freedom, too.
Gather Your Personal Information
To apply for a bad credit loan, you must have a complete picture of your own information and understand how your credit score is determined.
There are several free services available to check your credit score without affecting your report. Whichever you choose, be sure to check with all three credit bureaus: Equifax, Experian, and TransUnion. When you look at your report, you’ll see a list of financial activities that have had a negative impact on your score.
You should go through your reports with a fine-toothed comb to make sure there are no errors. You should also make sure that all closed accounts on your credit report have been reported correctly. If an account is not closed and the credit limit is still showing on your report, this could be a black mark against you.
Reviewing your credit report will give you a good idea of where you stand with potential creditors. It can also offer you information about what you can do to repair your credit.
In addition to your credit reports, you’ll need to obtain information, including:
- Your annual income
- Your debt-to-income ratio
- A list of your regular monthly expenses and your budget in dollars
- Your employment history (some lenders require employment records)
When you review this information, you’ll have a better idea of what you can afford, where you can improve, and how to best tailor your action plan.
Talk To Your Bank
Once you have your financial information in hand, start looking up the minimum credit score required by the lenders you’re interested in.
A great place to start is with your own bank or credit union, since you have an existing relationship with them. If you have a good relationship with your bank, ask them how you can get a loan. They may be willing to provide you with a small or guaranteed loan to get you started. Ask them about their regular approval criteria to see how much more your score would have to go up to take advantage of a regular loan.
Even if you’re not sure if you want to take out a loan, it’s important to be aware of all the options available to you. Gather all the information you can to make an informed decision.
Don’t Give Up On Your Credit Score
You don’t have to have a perfect 850 on your credit report to get a loan, but that doesn’t mean it’s okay to let your credit score stagnate if it’s already low. Lower scores mean higher interest rates and lower credit limits. You can take small steps now to start improving your score.
A good credit score is between 700 and 850. A fair credit score is between 620 and 679. A bad credit score is usually below 580.
The best ways to improve a bad credit score are to pay off your debt as quickly as possible (without incurring more debt in the process) and to review your credit reports for errors. If there are errors, call each credit bureau and correct them immediately.
You should also limit the number of loans and credit cards you apply for to avoid acquiring too many inquiries on your account. Difficult inquiries can hurt your credit by up to 10 points. This drop is temporary, but it could be enough to significantly lower your score if you query too many.
Assuming everything else in your credit history stays positive, your score will start to recover in a few months. Waiting a few months to get your loan can help increase your chances of getting approved.
Remember that improving your credit score is a time consuming process. Do everything you can to start improving your score right away, and consider applying for a bad credit loan if you need financing right away.
Show You Can Make Payments
Lenders need to know that you can repay your balance and interest. You need to make sure that the monthly payments on a loan don’t stretch your budget to the breaking point. As a general rule, try not to have debt payments greater than 36 percent of your gross income.
Proof of income in the form of employment tax stubs can be helpful. You may also consider getting a co-signer for your loan. Be careful when asking someone to sign and don’t ask someone who is also in bad financial shape due to the risk of damaging their credit.
Shop For Lenders (And Watch Out For Scams)
When looking for a lender for a bad credit loan, it’s important to choose a company you trust. Many fleeting companies are making shady loans that can further damage your credit. Some online lenders promise no credit check loans to people with bad credit, but if it sounds too good to be true, it is. Another red flag is lenders who ask for money up front, called advance fee loan scams.
People with bad credit may feel like they have limited options when looking for a loan due to higher interest rates or lower credit limits. But that doesn’t mean you have to do business with a disreputable company to get a loan.
Before you sign the dotted line, check with your state’s regulatory agencies to make sure the lender is licensed and operating properly.
Repair Your Credit
If you follow these five steps, you may find it easier to get a loan with bad credit. Contact us at Associates Home Loans to learn more about bad credit loans and find out what you need to do to apply.
When you rebuild your credit score with reputable lenders, you’ll be able to move forward with confidence. We’re here to help you and your family get there.