If you’ve had credit problems in the past, your credit report lets potential lenders know that you might be a risky borrower. Credit missteps can happen for a variety of reasons, such as job loss, divorce, or forgetting to pay bills on time. Having bad credit or no credit history at all means that some lenders will be reluctant to loan you money. Here’s what you need to know about getting a loan with bad credit.
What Credit Score is Considered Bad Credit?
The credit score that’s considered bad credit can vary from one lender to another. Some treat anyone with a credit score under 670 to be a high credit risk, while for others the cut off is 620. A credit score lower than 580 is almost always considered poor. Your credit score isn’t the only thing potential lenders consider. Negative items on your credit reports, such as late payments, accounts in collections, or bankruptcies, are red flags that tell lenders there’s a chance you will miss payments in the future.
Loan Options for Bad Credit
If you have bad credit, that doesn’t mean you can’t borrow money, but your options may be more limited than those of someone who has good credit. You can expect any loan approval will come with high interest rates and additional costs such as an origination fee.
Shopping Around for Personal Loan Options
It’s a good idea to shop around for personal loan options. Credit unions sometimes have more flexible credit standards for members who have had credit problems in the past. Some lenders specialize in providing loans for bad credit borrowers. Many of them will pre-approve you without impacting your credit, so you can understand your approval odds and the rates and terms available.
Improving Your Credit
If you’re not in the middle of an emergency, you may want to consider postponing applying for a loan until you can bring up your credit score. Catch up on any past due bills and pay down credit card balances. The more time that passes after a negative item hits your credit report, the less impact it will have on future credit decisions. Adding a co-signer may also improve your loan options.
Know What’s on Your Credit Report
Whether your credit is good or bad, it’s important to be aware of what’s showing on your credit report. Review your credit report periodically to make sure the items being reported are accurate, no inaccruately reported late payments, , wrong balances, and that all of the accounts belong to you.
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