Personal Loan on a bad credit Doesn’t Have to Be Hard – Read These 6 Tips

There are so many reasons why you may need a loan, ranging from education, personal expenses all the way to the idea of starting your own business (the majority of people use personal funds for this). Still, which factors determine whether you’ll get the loan that you need? This question inevitably leads to one of the most important questions that we need to deal with, the issue of why is a credit score so important.

First of all, it affects the terms of the credit, as well as the amount of money that you have to pay back. You see, some lenders will outright refuse to approve you for credit, while there are some who will just give you unfavorable terms. This means paying substantially more on a monthly basis and paying more in terms of the interest rate. Either way, there’s always a solution, even with a bad credit, which is why you need to read these several tips.

1.    Check your credit score

The simplest way to check your credit score would be to find a platform or organization that specializes in this and there are a plethora of options out there. There are some organizations that specialize in credit score estimates and their base their equation on a series of factors. In general, there are five ranking factors that matter here. First, there’s the issue of payment history that amounts to about 35 percent. The amounts owed are 30 percent of the score, while the length of your credit history is about 15 percent. Finally, the number of types of credit that you’re currently using amounts to 10 percent more and the number of account inquiries is yet another 10 percent.

Most importantly, you need to learn how to read the credit score in question in order for these numbers to mean anything. The scale itself ranges between 300 and 850 and the higher the number gets the better your credit score is. As far as the majority of lenders is concerned, a score between 760 and 850 is considered excellent, a score between 700 and 759 is seen as very good, the score between 660 and 699 is fair, while the score between 620 and 659 is poor. Naturally, scores under 620 are considered to be extremely poor and may cause you a number of problems when attempting to get approved for a loan.

2.    Improve your credit score

There are several ways for you to improve your credit score and the most important one is to be diligent in your payments. This means paying all your bills on time, including your utility and cell payments. Try to pay off your credit as fast as you can and avoid applying for new credit accounts. Finally, try not to close unused credit cards, seeing as how they too testify about your credit score (we’ve already mentioned that the length of your credit history services as a positive factor). Improving your credit score, nonetheless, may take months.

One of the best ways to do all of this is to look for you to find a suitable online debt consolidation loan to apply for. Benefits of this are numerous, ranging from the fact that you get a single loan to focus on instead of a myriad of smaller loans, which gives you an easier way to improve your credit score. Keep in mind, however, that the total amount of money owed doesn’t decrease. Either way, getting a consolidation loan is a solid start.

3.    Secured loans

Sometimes you don’t have time to wait, which is why you need an alternative. One such method is getting secure loans and there are two major types that you have to take into consideration – the collateral and the co-signer. Take a look at this from a perspective of a lender and you’ll soon realize that, with a poor credit score, lending to you tends to be quite risky. This is why security in terms of collateral guarantees that you’ll be able to pay off your debt if worst comes to pass.

Another option that you have is finding a dependable co-signer. Here, you have a problem of finding someone with a decent enough credit score to vouch for you. Their own credit score is important due to the fact that the lender in question will inspect it instead of your own credit score. In the case where you’re unable to meet your financial obligations, it will be the duty of your own co-signer, which is why you need to find someone who is willing to undergo this risk. This way, you may be able to apply for any credit.

4.    Friends and family

If you have people with that kind of money, ask them for a loan. This is particularly true with first-time entrepreneurs and there’s a statistic that claims that as many as 38 percent of all startups are funded by friends and family. Advantages of this kind of method are the fact that you don’t have collateral, even though you might be asked to sign a bond. Also, you could get the money without ever having to pay for the interest, as long as you promise to return the money.

Downsides, unfortunately, are numerous as well. First of all, the amount of money that you need may exceed the amount of money that people close to you are able to lend you. Second, instead of credit score, what you will have to rely on is their own estimate of your financial responsibility and reliability, which may not always go in your favor. Finally, if things go south and you’re unable to pay the debt, you risk ruining a friendship or a good family relationship. Fortunately, this can also serve as a great motivator.

5.    Gathering documentation to prove your credit-worthiness

Some lenders might be willing to look past the credit score, seeing as how it’s just a number that might not reveal the whole story. Still, those who are still willing to listen to you may require some additional convincing. For instance, in order to prove that you’re indeed credit-worthy, you might need to provide personal information like your tax returns (previous two years), details of your job history and a list of your assets (even if you don’t intend to use them as collateral). As for the type of assets that you can use as collateral, most commonly people use real estate or a cash-secured loan. Invoice collateral or inventory financing is also an option, even though the latter is more common for a business loan.

Other than this, you might also have to submit some data on unsecured debts that you’re currently using, which mostly includes credit cards and medical bills. If you pay/receive alimony or child support, this too needs to be listed. Finally, some of these lenders might go even further in-depth, which means that you should also provide them with information about involvement in lawsuits, as well as if you have declared bankruptcy. If you’re uncomfortable with some of these questions (due to the fact that you see them as private matters), remember that you’re not legally obliged to answer them, even though they might be necessary for you to get approved for a loan in question.

6.    Alternative lenders

On the other hand, you need to understand that there are some lenders out there who are willing to approve you for a loan even in a scenario where you have a bad credit score. Due to the fact that there are so many online lenders out there, there are some who specialized in bad credit loans. They did so in order to A) become more competitive and B) tap into a risky, lucrative market.

Still, you need to be aware of some of the problems that go along with this. These loans have higher interest rates (as we’ve already mentioned) and sometimes come along with unexpected fees and penalties (which is why you should always read the fine print). In some scenarios, they won’t even be licensed, which poses a substantial risk for you. As for the advantages, there are many lender options and, seeing as how there isn’t a lot of paperwork involved you can get your money a lot sooner. Also, for those who are interested in such things, this money can be used to improve your current credit score.

In conclusion

At the end of the day, even if you do find a way around your bad credit score, a credit score is still something worth improving. This is due to the fact that some employees might check out your credit score during the vetting process (with those same agencies that we’ve just discussed). In that case, this might turn out to be a determining factor in whether you get the job or not. Other than this, a credit score might play a role in the insurance policy that you get and the premium that you pay for it. All in all, it’s one of the most crucial matters that you have to deal with, right away.