Since 2020, every single one of us has been hit with some amount of financial difficulty. As such, many of us are in desperate need of loans to make this struggle more manageable.
Unfortunately, this global economic crisis may have also lowered your credit score, making it hard for you to get approved. If that wasn't bad enough, lenders everywhere are tightening their lending standards in response to this tough economy.
So what are you to do? Is it even possible to get a loan with bad credit?
That's the good news. It is possible. And we're going to show you how to do it, step-by-step.
Furthermore, there's more than one way to approach this problem. So, we'll show you multiple strategies and the pros and cons of each. Read on to learn everything you need to know about getting a loan when you have bad credit.
Evaluating Your Credit
First, you need to know the current state of your credit and how to keep monitoring it. This will give you an idea of how much your credit rating needs to improve.
Plus, keeping an eye on your credit score lets you spot any negative activity that you might be able to correct right away. And, you'll be able to see when your credit score has improved enough that it's no longer considered "bad."
For that matter, you must also be aware of what counts as a bad credit score. This is also explained in this section.
Furthermore, while reviewing your credit reports, you can look for errors that are lowering your credit score unnecessarily. Then, you can report these errors to the credit bureaus to raise your credit score.
How/Where to Check Your Credit Score
You can get a free copy of your complete credit report at AnnualCreditReport.com. This is the only official, government-authorized credit report website.
In other words, beware of any other website that offers you a credit report. A lot of consumers get scammed by such sites.
Anyway, at AnnualCreditReport.com, you are allowed a free credit report every week from all three credit bureaus: Experian, Equifax, and TransUnion. Also, this does not have a negative impact on your credit score, unlike other types of credit checks.
Looking For Errors
Now, you need to print out—yes, print—your full credit report from all three bureaus. You will need this printed copy to check for errors.
You see, these reports are usually very long and not at all fun to read through. So, doing this with a printed copy makes it easy to mark where you leave off so you don't lose your spot.
In any case, designate some time to sit down and read through every page of each report. Highlight any reported credit activity that doesn't seem right and then research it after your readthrough is complete.
Compare All Three Reports
Also, compare all three reports to make sure they are reporting the same information. Sometimes, an error will show up on only one report.
To make this comparison easier, read through one month of activity at a time on each report. Then, review this same month of activity on the other two reports. After that, move on to the next month.
Finally, get a new report every week or month and repeat this practice. This way, you can keep monitoring your credit without having to review such a large amount of activity.
Reporting Errors to the Credit Bureaus
Again, remember to research any questionable activity before reaching out to the credit bureaus. For instance, it may be that the activity you don't recognize is the work of another authorized user on one of your credit card accounts.
In any case, when you are certain that there are errors on your report, you can dispute them. Specifically, mail or email your detailed error dispute message to the bureau that reported the erroneous information. Include in this message:
- The details of each mistake
- Why/how the information is incorrect
- Direct copies of this information from the report itself
- A formal request to have the errors removed from the report
- Your contact information
Once the errors are formally disputed in this way, the bureau is legally obligated to remove their errors for free. The three credit bureaus should have specific instructions for this process along with the relevant contact information. But here are some government-issued instructions as well.
What Is Considered to Be Bad Credit?
In general, any score lower than 580 is considered bad credit according to the FICO credit ranking model. Specifically:
- 300-579 is Very Poor Credit
- 580-669 is Fair Credit
- 670-739 is Good Credit
- 740-799 is Very Good Credit
- 800 and higher is Excellent Credit
Rember, though, this score is not permanent. If you have bad credit now, there is much you can do to raise it, including hiring a credit repair service. We'll explain more about this later.
Getting a Bad Credit Loan
There are lenders who will approve you for a loan even though you have bad credit. Truthfully, though, it's a much better option to fix your poor credit first and then apply for the loan.
For one thing, better credit improves your chance of getting approved. More importantly, though, bad credit loans have a significantly higher interest rate. Ultimately, they might harm your financial situation more than they help.
Regardless, if you decide to follow this course of action, here's what you need to do.
First, simply search online for "bad credit loans" and compare rates. Also, a lot of financial websites have reviews on their blogs that can help with this research. If you end up finding a lender that offers you an agreeable (and fixed) interest rate, go ahead and apply.
Choose Pre-Approval Offers if Possible
You will usually get the best rates from pre-approval offers, such as those you may get in your mail. Just make sure you carefully review the terms and conditions before you apply.
Try Your Bank
If you've been a loyal patron of your bank for a long time, they probably trust you a lot more than they trust a random stranger off the street. More importantly, they most likely trust you more than some other bank would. That is, to any lender who doesn't know you, you are just a random stranger off the street.
Your bank will be somewhat understanding of your situation and offer you more reasonable rates. Plus, they don't want to lose your business to their competition.
Try Peer-to-Peer Lenders
Next, peer-to-peer lenders are generally a lot more flexible with their lending standards. They offer very competitive rates that are often better than any bank would offer.
Apply With a Cosigner
Do you know anyone with good credit who would be willing to cosign with you? If so, this will get you a much better rate.
On the downside, you will ruin your cosigner's credit if it turns out you miss any payments or otherwise violate the loan terms. Then, you'll have relationship problems in addition to your financial problems.
Secure the Loan
Lastly, securing the loan against a valuable piece of collateral (a car, property, etc.) can also earn you a lower rate. Lenders consider these secured loans a "safer bet" since they get to keep the collateral if you default. Thus, you'll have an easier time getting approved for a secured loan, too.
Beware, though. If you don't plan this carefully, you lose the collateral.
Repairing Poor Credit Before Applying
Surely, you noticed the many warnings against strategy number one. Fortunately, there are far fewer things that can go wrong when you fix credit first and then seek out a loan. In fact, none of the troubling scenarios above apply to this strategy.
When your credit is put in good standing, lenders are happy to offer you good loan rates. This way, you don't have to take any additional risks to earn their trust.
There are some methods you can do on your own to fix your credit. But the most effective solution is to hire a credit repair company.
Hire a Credit Repair Company
Before you attempt any DIY bad credit repair methods, consider this. No one is better at fixing bad credit than the experts who do it professionally.
You, on the other hand, are, shall we say, less experienced in this field. Thus, a credit repair company will achieve results much faster than your DIY efforts.
Furthermore, bad credit repair already takes at least a few months no matter what. If time is a factor, you can't afford to waste any experimenting on your own. Improve your bad credit quickly and effectively with a credit repair service.
Pay Off Past-Due Accounts
If you have any past-due payments to make, make them now. The credit bureaus won't consider this a problem until the payment is overdue for 30 days. Paying now can protect your credit score from getting any lower.
Even if you have payments that are already past the 30-day mark, pay them as soon as possible. As long as these payments remain overdue, they will keep lowering your credit score again and again.
Pay Off High-Interest Accounts
Another way to repair bad credit is to optimize your credit utilization ratio. Basically, this means having less debt and/or more available credit that you aren't using. Let's start with getting less debt.
One smart method is to pay off your high-interest accounts first. Since these are more of a "rip-off" than your other accounts, you're likely to save more in interest by eliminating these sooner.
Pay Off Low-Balance Accounts
Another strategy for lowering debt is to pay off any accounts with a low balance. These are the easiest to pay off. And once you do, you have more money per month to put toward your other debts.
Increase Your Credit Limit or Open a New Credit Card Account
The other way to optimize your credit utilization ratio is to increase the amount of available credit you have. Do this by opening a new credit card account. Or, call your current credit card company and see if they will increase your limit.
Pay On Time
We mentioned before how missed payments are terrible for your credit score. As such, once you've settled your past-due accounts, you need to make sure that you don't fall into this bad habit ever again. If you do, it will undo all the hard work you've done trying to fix your credit.
Fortunately, there are some easy tricks you can try to prevent this. First, try to coordinate your various monthly payments according to a more convenient schedule.
For instance, if all your monthly payments are due the first week of every month, this might make them difficult to pay. That is, you may not have enough money that week to pay all your bills at the same time. Contact the billing department of these companies to see if you can permanently change the due dates, so they're more spread out.
Also, if you know you can't make a certain payment on time, call the company's billing department. See if you can make alternative arrangements this month to pay at a later date. This way, the company is less likely to report the payment as late.
Do You Need Help With Your Bad Credit?
We hope this guide has given you all the information you need to get through this tough situation. If you're struggling to get approved for a loan because of your bad credit, follow the tips in the guide above.