Despite what some commercials will tell you, having bad or no credit is a problem. It’s a catch-22 as well because a bad credit score means it’s harder to get credit – and you need to get credit to improve your credit score.
It’s not impossible to get a loan when you have bad credit – you just need to know where to look. Here are some options if you’re looking to take out a loan with bad or no credit.
Importance of Credit
It’s essential that you stay on top of your credit score, even if you don’t see yourself taking out a loan shortly. You never know when you’re going to need a loan in an emergency, and you don’t want to find out you have bad credit at the last moment.
Your credit doesn’t only apply to obtaining loans and credit cards. It makes waves throughout all aspects of your life. If you want to rent an apartment and you have bad or no credit, the landlord will undoubtedly charge you a higher deposit at the very least.
Credit isn’t always intuitive. Just because you’re responsible with your money doesn’t mean you have a fantastic credit rating. You could have too many credit cards open or no credit cards at all. Both of these elements negatively affect your credit rating, even if you pay all of your loans and credit card payments on time.
Sometimes, a bad credit score may have nothing to do with you. We live in the age of data breaches, and no one’s information is every completely safe. We learned this harsh lesson during the recent Equifax data breach, which put all of our sensitive information at risk.
Someone could have stolen your social security number and went on a spending spree with credit cards under your name. You need to know if your credit has been impacted by one of these breaches.
Despite how important your credit score is, 40% of people haven’t checked their credit in the past year according to a credit.com survey. Of those who have checked their credit, less than half have checked it more than one time. You need to know what your credit score is, even if it’s bad. Once you understand your credit rating, you can start making adjustments to your life and start increasing your score.
What Does Bad Credit Mean?
Bad credit means that you’re a higher risk for lenders. You either don’t have enough of a track record for them to trust you, or you’ve burned people in the past. Late payments and failure to pay the money you owe are obvious ways to lower your credit score, but there are some more obscure ways as well.
If you have a high balance on your credit card or are only paying the minimum payments, lenders will see you as a higher risk. Constantly applying for other forms of credit – loans or otherwise – will also lower your score. If you’ve only had access to credit for a few months, your credit score isn’t going to be high.
All of these elements are things you might not think of, but they’ll make your credit score lower over time. They might not mean that you’re a high risk, but that’s what banks and other lenders see. The best thing you can do is to have a couple of credit cards and a couple of loans on your record. Pay them on time, and it will boost your score.
Obtaining a Personal Loan
You’ve doubtlessly seen commercials or internet ads for outlets that lend to people with bad credit. Most of these places are scams, preying on people who are already in debt. Don’t fall for them. If you owe money, these places will likely make you pay such a high-interest rate that you’ll end up hurting your credit rather than helping it.
If you’re looking for bad credit loans, you want to dig out of your credit score hole eventually. These loans shouldn’t trap you deeper in debt, so you’re worse off than when you started. You don’t have too many options, but it’s not impossible to find loans for people with bad credit.
It’s difficult to get personal loans for bad credit from a commercial bank, but credit unions are a different story. They’re similar to their commercial counterparts, but don’t have to answer to shareholders who only want to see profits. These banks are nonprofits, so they can give back to their members by offering lower fees than you’d find at a commercial bank.
In short: credit unions have a heart. They can meet with you and make a judgment on whether or not you’d pay your loan based on more than just a credit score. Where someone at a larger bank has their hands tied by a corporate policy, credit unions have more room to maneuver when lending you money.
You’ll still have to pay a higher interest rate if you have bad credit and are borrowing money from a credit union, but they’ll often give you a loan if your case is strong and they believe you’re good for it. If you can, try to find a credit union that’s affiliated with your employer. This will give the bank more confidence in your character, and peace of mind that their investment is safe.
You don’t have to limit yourself to physical locations anymore, as the internet offers multiple competitive options for people with bad credit. Most of these outlets have their own risk assessment model, where credit score is only one aspect. If you have a solid employment history and a college degree, you’ll likely qualify for one of these loans.
These loans are ideal for people who need money fast. The applications are simple, and they can make decisions on your case within the hour. You only have to wait a day or two for them to deposit the money, and then you can use it. If you need a fast home repair or credit card consolidation, these online lenders are some of your best options.
A co-sign is when someone with good credit stands behind your loan in case you don’t pay. They’ll be on the hook for it, so it will have to be someone who trusts you to make the payments. If you fail, the bank or institution will come to them for the money, which is a great way to lose friends if you’re not staying on top of your payments.
A lot of bad credit loans have co-signers on them, and you can often get a loan from a national bank with a co-signer attached. Find a friend or family member with a good credit score, and see if they’re willing to co-sign a loan with you. They need to trust you here because late payments and failure to pay will take a toll on their credit score as well.
On the other hand, if you make timely payments, your own score will increase alongside your co-signer’s. After you have an established credit history or improve your existing score, you can refinance and take a loan in your name alone. If you don’t want to do that, you should be all set to get your next loan without a co-signer.
It’s far easier to get school loans with bad credit than it is to get personal bad credit loans. The federal government is in the business of making loans for school with bad credit. Virtually no one has a solid credit history when they’re graduating high school. After all, you can’t get your own credit card if you’re under 18, and if you’re under 21, it’s still extremely difficult to get one.
Federal student loans should be everyone’s first option. They don’t require a credit check and offer everyone the same opportunity to borrow money for school. More than that, federal loans are far more forgiving than private loans when it comes to college.
Private loans often have a variable interest rate, which means the interest rate will adjust based on the financial climate. Right now, it looks like interest rates are only going up. Additionally, private loans often require you to start paying before you finish school. You are likely only making enough money for some extra snacks and a video game while you’re in school, so there’s no shot you’ll be able to start paying hundreds of dollars a month.
Federal loans are also more forgiving once you get out of school, and can only garnish your wages to a certain extent if you don’t pay. Always opt for a federal loan if you have the option. If you can only go private for one reason or another, you most likely need to postpone college until you have a credit history or get one of your parents to co-sign with you.
Improving Your Score
Taking out loans is one of the only ways to improve a bad credit score. You can take steps to improve a lagging score; such as limiting your credit cards and paying existing debt on time. Still, there’s only one way to increase a terrible score: borrow and pay it back on time.
Once you borrow some money and improve your credit history, it will be much easier to get your next loan. After that, your score should be back to the average, and you’ll be out of your bad-credit hole.