A credit score is like your ID to creditors in the form of numbers that tells them how likely it is that you will pay back a loan. Individuals with good credit standing can get loans from banks and lending companies at an ideal rate because of their creditworthiness. Some also have a bad credit history.
It is quite a struggle for people with bad credit to get their loans approved even when they need it the most. However, that does not mean that they have nothing and no one to turn to for help. It is still possible for bad credit loans instant approval. There are still credit institutions that will allow bad credit loans to anyone. Customers will just encounter a different process depending on their case.
Top Reasons For Bad Credit
There are a few factors why people get a bad credit history, and they are listed here:
Filing For Bankruptcy
Individuals and companies that filed for bankruptcy are entities avoided by creditors because of the complexity of their financial status. Bankrupt business owners receive protection from hounding credit institutions to keep legal actions at bay. However, the bankruptcy stays in its record for as much as seven years. They cannot get cash loans for quite a long while because of the bankruptcy in their credit history.
Overdue Payments
No matter the amount of the loan, if a person is consistently late in making payments, it will affect 35% of their credit scores. Even worse, if the individual suddenly stops making payments, lenders report the delinquency to the credit bureaus and record it in their history. Lending institutions check credit histories first, and no decent business will lend money to people with a tarnished financial history.
Charged-off Accounts
Creditors who have given up trying to get the debtor to pay charges off the account and the debtor will never be able to use it for transactions. It then lowers the credit score, and the debt does not go away. They report the delinquent payer to the credit bureau that denies the debtor loan approvals for seven years.
Collection Accounts
Creditors who cannot get loan payments from debtors get calls from third party collections. These third parties then pursue the delinquent payers on behalf of the lenders. If there are no signs of payment, the behavior goes to the credit report. In turn, creditors cannot approve the loan application of delinquent payers.
Neglecting Loan Payments
Similar to charge-offs, missing payments will have your account put on hold. The credit bureaus receive a report on the numerous delinquencies, and your credit history suffers. You will not be eligible for any type of loans anymore for a very long time.
Wrong Credit Card Choice
When you get a credit card offer from a banking institution, you may notice that there are many kinds. That’s because there is a credit card for different lifestyles and income ranges. Choosing the wrong credit card that is not appropriate to your lifestyles, such as high credit limits and fees, can leave you in trouble if you are not careful. Credit bureaus also use credit cards as a reference for scoring.
Identity Theft
Sometimes it is not the actual owner of the account who is at fault. There are isolated cases of identity theft, causing the account owner to incur debt without his or her knowledge. It can be through credit cards and other types of loans made to the name of the owner that can cause damage to their rating.
How To Get Loans With A Bad Credit
If you are one of the many sufferings from the result of having bad credit, don’t fret. There is still hope for you yet since there are steps you can take to get the financing you need. However, it is essential to be realistic about your situation.
1. Asses your credit score
Learn how credit scores can affect your interest rates. You will still be able to improve your credit rating if you work hard to pay back what you owe. Lenders take chances on people who are doing their best to pay them back. If you can manage to raise your credit score with regular payments, the better you can apply for personal loans for bad credit.
2. Turn to your assets
Just because you owe cash does not mean that you don’t have anything to your name. If you have valuables such as your car and other possessions that you can liquidate into cash, go right ahead and trade them for money. Use the money to pay off your loans in full or partially. While it may be challenging to part with your things, your peace of mind is more important.
3. Get an updated credit score
Companies such as FICO and Credit Karma can help produce your latest credit history. With FICO, the highest scores are from 800 to 850, which rates as Excellent and 300 to 579 as Poor. They also have positive reports on improving credit history in the United States. You can go to their websites and check your history. Some services are free, and there is no limit to how many times you want to check. Knowing what your credit score will help you analyze how much exactly you can borrow with the rating you have.
4. Analyze debt against income
Make calculations and divide your debt payments by monthly income, and the sum will be the percentage. About 35% is ideal for lenders when measuring the income to debt ratio. That’s because 35% goes to paying back what you owe and not a cent more. It is more likely for a creditor to approve your loan if that 35% suffices.
5. Research loan options for bad credit
There are many options that you can choose if you badly need a loan. There are several loan types for those with bad credit but understand that they may have higher interest rates because these creditors are taking a chance on you. Research diligently online and offline to see what will work for you.
6. Gather financial information requirements
When you are ready to apply for a loan, make sure to bring the following:
- Tax returns
- A copy of your job description and salary or proof of income
- Bank statements (savings or checking accounts)
- Financial history indicating if you are paying alimony or child support
- List of assets (house, car, and other forms of property)
- List of unsecured debts
7. Secure a co-signer
A co-signer should be someone you trust, is financially sound, and willing to back you up as you apply for a loan. Co-signers act as another layer of assurance for lenders that someone else will help you in case you miss a payment. However, you should just be as trustworthy to this person and make sure that you can meet your obligations. Else, your family member or friend will have to shoulder what should be your responsibility.
What Types of Bad Credit Loans You Can Get
While you cannot borrow from traditional sources such as banks and lending companies, here are some optional ideas where you can take your chances.
Borrow From Family, Friends, or Relatives
The first option should be the people you know. If you are in a good relationship with them and that you are aware of their financial situation, they may be the best option to ask for a loan. They will likely understand your case, and they may trust you with their money and even give you extensions as long as you are honest with them because they know you in person.
Peer-to-Peer Loans
An option that is growing in popularity, P2P, or peer-to-peer lending involves an agreement between two parties: an individual who wants to increase their money and one who needs the cash. They then discuss an agreeable rate. Such lending methods may come with requirements depending on the individual or group, such as minimum age, income, and bank account.
Home Equity Loan
Use the equity of your home instead since your credit score is not a requirement for approval. With home equity loans, you can even borrow money for up to 30 years. Understand, though, that you are making your home as collateral. Failing to make regular payments, and you can end up homeless.
Credit Union
Unlike traditional lenders, credit unions do not always lean towards your credit history. They are more flexible because they do not have to pay federal income tax. That means you can expect lower fees and interest rates, even to larger loans. A credit union may use your employment history when making a decision instead.
For example, Gordon Simmons Service Credit Union considers your employment history rather than solely relying on your credit history, allowing for greater flexibility in offering lower fees and interest rates, even for larger loans.
Advance Salary
There are credit companies that may allow you to take out an amount matching half of your salary. That means when you get an actual salary, you will need to deduct the amount and interest to be able to pay the loan. There are reputable payday loan providers online that you can check out.
It is an ideal option when you have to meet urgent needs for personal use or use in your home while your salary is still far off. Payday loans are a good example.
The Takeaway
Bad credit can happen to anyone due to various reasons, and you may not always be at fault. It is a challenging state to be in, which is why it will require strict discipline on oneself to get out of debt and improve your credit history. There are always options available even for those with bad credit ratings, and all you need to do is to do your research to find ways to secure money. It will take effective money management to make steady payments to get out of debt as well as to have something to use for your expenses. Learn to find credible institutions and seek out assistance to benefit to the fullest.
