Though our school days may be long behind us, we won’t ever shake a certain number from following us around. Credit scores are like the GPA of the real world, and qualifying for a loan with bad credit may feel like trying to get into Harvard with a low GPA.
But unlike its academic counterpart, having a bad credit score doesn’t completely disqualify you from getting approved for a loan. There are certain steps anyone with bad credit can take to qualify for a loan, including finding a borrower that works with lenders with fair or bad credit, improving your credit score incrementally, and using a co-signer on your loan application.
Keep reading to learn more.
Your credit score is an indication of your financial health. Lenders use credit scores to predict the likelihood of receiving on-time payments from borrowers. Using a scoring model, companies look at several factors to determine your credit score, including:
According to the following Consumer Financial Protection Bureau (CFPB) You have many different credit scores. And, it is normal to see slightly different scores depending on the method each company uses to determine your score.
Whether you’re looking to qualify for a home loan or personal loan, lenders will use your credit score to gauge the risk associated with providing you a loan. If you have a fair or bad credit score, lenders may feel you’re a higher risk and deny your loan application.
If a lender approves your loan application despite your bad credit, you will likely pay a higher annual percentage rate (APR) or interest rate.
As we just discussed, having bad credit doesn’t mean you’re out of the loan game entirely. To qualify for a home loan or personal loan with fair or bad credit, you have to find lenders who work with your unique situation.
Traditional lenders like large banks may find your bad credit score too high of a risk to approve your loan application. While you should still try your luck with larger institutions, working with smaller lenders may be your best bet.
If you have fair or bad credit, consider applying for a home loan or personal loan through:
These member-owned companies are often a great place for borrowers with fair or bad credit to apply for a loan. Typically offering more personalized services, credit unions work with borrowers of all types. You may pay a higher interest rate or APR, but you’ll find a higher likelihood of qualifying for a loan through your local credit union than larger national banks.
Today, you can find lenders who exclusively offer loans via their online platforms. These lenders often have less stringent eligibility requirements and may not be as concerned with your bad credit history as more traditional lenders. One caveat you should consider is how overwhelming finding an online lender can be.
If you want a team to help you through the process – from finding the perfect lender to closing on your loan please reach out to usWhatever your situation, our team is committed to matching you with lenders that help reach your loan goals.
Consider following FHA loan If you need a home loan and have bad credit. FHA loans offer flexible eligibility requirements for borrowers with bad credit. If you qualify, you may also be eligible for low down payments and low closing costs. Read our following recent blog post Types of Mortgage Loans Available to Home Buyers Here you would learn more about FHA loans.
If you have a particular loan you know you want to apply for that requires a better credit score, there are some ways you can improve your score.
The first step to improving your bad credit score is to make payments on time. Paying any of your bills late has a huge impact on your credit score. In fact, your bill payment history makes up a large portion of your credit report – something lenders will definitely take into account when reviewing your loan application.
If you have balances on any of your accounts, take steps to pay down the debt. This is the second-biggest factor companies use to calculate your credit score. It may hurt at the moment, but paying down your balances makes a huge impact on your credit score in a small amount of time.
Finally, consider calling your credit card company and requesting a higher credit limit. This isn’t a foolproof method, but if you can get approved, you can improve your credit. By increasing your credit limit but maintaining your balance, your credit utilization goes down and your credit score goes up. But make sure you don’t use the extra credit on the card, or you’ll be in a worse situation.
Finally, if you’ve exhausted all your options to qualify for a loan with bad credit, consider adding a co-signer to your application. Adding a co-signer with good credit to your loan application greatly increases your chances of being approved for a loan. Acting as a guarantor on the loan, the co-signer takes equal responsibility for paying the loan if you can’t pay your monthly payments. Adding a co-signer to your loan application can lower your overall interest rate and APR.
Another consideration is adding collateral to your loan application. If you have an asset like a car or another home, you can offer it up as a qualifier for a loan. This gives the lender a backup plan in case you cannot make the monthly payments. Like adding a co-signer, using collateral on a home loan or personal loan can lower your interest rate and APR.
Don’t let your bad credit keep you from qualifying for a loan. Reach out to Lendevity today to streamline your research process and find a lender willing to work with borrowers like you.