Almost a third of Americans have credit scores below 601. You might think your bad credit score can keep you from getting a loan, but this isn’t necessarily the truth.
Bad credit might seem like it excludes you from all kinds of opportunities. We’re often told that without good credit, we can’t get approved to buy a house, open a business, or do other things. But in reality, you still may be able qualify for a loan even with a low credit score.
What Does Bad Credit Mean?
Generally speaking, any credit score below 580 is considered poor credit. However, when it comes to loans, many lenders consider anything under 650 to be bad credit. Even if your score is over 580, you may still have trouble getting approved for the loan you need. Remember that there is no solid rule for how high your credit has to be to get approved for a loan and that this depends on the lender’s criteria.
What Kind of Loans for Bad Credit Exist?
Personal loans, known as bad credit loans, exist to assist people with bad credit. These loans can come from traditional financial institutions like banks and credit unions.
Bad credit loans typically come with less desirable terms than other loans. You’ll likely end up paying a higher interest rate, for example. But if you need the funds, these loans can help get you through a hard time.
However, there’s one kind of bad credit loan to avoid: the payday loan. These loans have massive interest rates that can make them virtually impossible to pay back. This only causes your debt to grow, putting you in an even worse situation.
How to Get a Loan with Bad Credit: A Step-by-Step Guide
Need a loan? Here’s your step-by-step guide to getting those funds with a low credit score.
1. Know Your Credit Score and Make a Plan
If you’re not sure what your credit score is, you can pull it from myfico.com, although there is a cost to this. It’s beneficial though because your FICO score is the score that lenders most frequently use.
You can also look at your credit reports to see if there’s anything that might be having a negative impact. Checking your credit reports gives you a great opportunity to check for mistakes. Sometimes, your bad credit may be the result of inaccurate information being reported.
If you don’t find any mistakes on your credit report, focus on what you can do to fix your credit instead. For example, late or missed payments might have hurt your score. While you might not be able to have this information removed, you can make sure you start making payments on time to prevent further damage by setting up automatic payments.
You can also work on paying down balances on credit cards and other revolving accounts. If you’re carrying balances, see if you can make room in your budget to make more than the minimum payment each month. Lowering your balances can help you boost your credit score while saving you money on paying interest. You won’t fix your credit overnight, but if you know you’re planning on applying for a loan in several months, you can start working on fixing your credit now to improve your chances of getting approved.
2. Choose the Right Bad Credit Loan
If you need a loan immediately and it can’t wait, here are a few options:
Many times, a lender who won’t lend to someone with bad credit will change their mind if there’s a cosigner involved. A cosigner helps ensure that the loan will be paid back, so lenders have less to be nervous about.
Your cosigner should have good credit, and should be someone that you trust, like a family member you’re close to or a really good friend. Many lenders are willing to work with you if you have a cosigner, so this can make getting approved for a loan easier.
Secured loans are another option if you have bad credit. However, you have to be willing to put an asset on the line, such as your car. This way, if you don’t pay back the loan, the lender can sell the asset and recoup some of their funds. You may consider this option but be cautious that you don’t risk something you can’t afford to lose.
Loans from Credit Unions
Credit unions often work with borrowers in ways traditional banks won’t. If you’re a member of a credit union, it can be easier to get a loan with bad credit, especially if you have a good relationship with them. Your relationship may be something you can leverage to get approved for a loan.
Want to Repair Your Credit?
Even though you can get a loan with bad credit, you don’t want to live with bad credit forever. If you’re not sure where to start with repairing your credit, contact Lexington Law Firm to see if we can help you. For over a decade, we’ve helped clients remove millions of negative inaccurate, unfair, and unverified information from their credit reports. Call today for a free personalized credit report consultation.You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.