If you need a personal loan but have had credit problems, you may wonder whether it’s even possible to get a personal loan with bad credit. It’s true that the best rates and terms go to those with the best credit, but that doesn’t mean you have to settle for a payday loan or other expensive options. Let’s talk about personal loans with bad credit: some tips you need to know.
What Scores Are Considered Bad Credit?
Different lenders use different credit scoring models, and each lender has its own guidelines for what credit scores are considered bad credit. For some lenders, if your credit score is below 680, you may be considered a risky borrower. Most lenders are cautious about approving people with credit scores below 620. When you don’t have a great credit score, your application may be denied, or it may be approved at a high-interest rate. Potential lenders look at other factors besides your credit score, such as your income and whether you have money in savings.
When you know you’re likely to pay a high-interest rate to borrow money, that doesn’t mean you have to settle for the first lender you find. Since lenders don’t all use the same criteria, it may save you money to shop around for the best rate. Some lenders offer prequalification, which means they do a soft credit pull that doesn’t hurt your credit, and then they give you an idea whether you’re likely to be approved and at what rate. Prequalification is a useful feature when you want to compare lenders.
Consider a Co-Signer
If you have bad credit on your own, consider asking a friend or family member to be a co-signer. Not everyone is willing to take this step because if you fail to make the payments, they will be on the hook to pay back the loan. If someone you know is willing to take this step, it can help improve your chance of being approved at a lower interest rate.
Improving Your Credit
If borrowing money isn’t an emergency, you may want to work on improving your credit before applying for a loan or credit card. To improve your credit score, catch up on any past due balances and try to reduce the total balance owed on revolving accounts such as credit cards. Get a copy of each of your credit reports through AnnualCreditReport.com and review them to make sure they are accurate.
If there are any errors on your credit report, they may be bringing down your credit score, which can cost you a lot of money in interest charges on future credit. Look for inaccurate payment history or incorrect balances. Make sure there are no accounts that you don’t recognize because they can be a sign of identity theft.
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