Typically, when you go to get a loan, your credit score will be one of the main factors. You might not think you can get a loan when you have a bad credit score. However, many loans with bad credit are available from various lenders.
A lower credit score doesn’t have to keep you from getting a loan. Whether you’re trying to consolidate debt or deal with an emergency, you can get a loan with bad credit. Let’s look at some of the things you should know if you don’t have the best credit score and you need a loan.
What is a Bad Credit Score?
Most lenders consider any FICO score of 629 or lower to be a bad credit score. This will vary a bit from one lender to another, but if you have a FICO score in the 500s, it won’t be as easy to qualify for a loan.
How Will a Bad Credit Score Impact Your Loan Application
When a lender looks over your loan application, they will look at a few key factors. Your credit score is one of the main factors they use to determine whether to approve your application, how much money to lend you, and the interest rate to charge you.
If you have a bad credit score, you can expect a higher interest rate and a lower loan amount if you’re approved. Your low credit score tells the lender you haven’t been able to pay your payments towards other debts in the past. This means the lender sees you as a higher risk to loan money compared to someone with a higher credit score.
Unless you need a loan immediately, it will save you money to take the time to build your credit before applying. Even a 1% change in your interest rate can make a big difference over the term of the loan.
Get a Loan with Bad Credit with These 5 Steps
Step #1 – Get your Credit Score
It doesn’t make much sense to try to get a loan with bad credit without figuring out what your credit score is first. You can get your free credit score from a variety of online sources. Knowing where you stand will also help you to decide which lenders to consider.
Once you know your credit score, you can look at the minimum requirements for each lender. It’s not worth it to apply with a lender you know will reject you. You may also find errors on your credit report, which could be impacting your credit score.
Step #2 – Look at Multiple Lenders
Each lender will have different requirements, and you want to look at the other options. Even the best bad credit lenders may vary from one to another. Look at the rates offered by each lender, along with the potential credit-building tools they have. It’s also smart to look at how fast you can gain the funds you need.
Step #3 – Get Pre-Qualified
Before you go any further, it’s a good idea to get pre-qualified with a lender for a loan with bad credit. Your pre-qualification will show you the loan amount, the repayment term, and the rate you can expect. This won’t impact your credit score, either. This can be useful when comparing offers from different lenders.
Step #4 – Find a Co-Signer or Secure the Loan
If possible, you can get a co-signer to help to secure the loan you need. With a co-signer that has better credit, you can get a lower rate on a personal loan. It may be the only way you can qualify for a loan if you have a bad credit score.
Another option is to offer collateral for the loan. This could be a savings account, a vehicle, or real estate. Anything of value the lender can take if the loan is not repaid can work as collateral.
Step #5 – Apply for a Loan with Bad Credit
Once you’ve reached this point, it’s time to apply for the loan you want. Again, having your pay stubs, W-2s, Social Security number, and other financial statements handy can help speed up the process.
Improving Your Bad Credit Score Before Applying
If you want to ensure you have a better chance of approval, you can improve your bad credit score first. As a senior, there are a few easy ways to boost your credit score, which include:
- Pay all your bills on time
- Lower your balances on credit cards and other loans
- Get a credit card or a loan to build credit with small charges and pay the full balance on time
- Have errors on your credit report removed
It might take a few months to a year to build a better credit score, but this can make it possible to get approved for a loan.
Where Can You Get a Loan with Bad Credit?
There are several bad credit lenders to consider when you need a loan. Some of the best places to find loans with bad credit include:
- Credit Unions – You will need to be a member to get a loan from a credit union. However, this is one of the best options if you get approved. Credit unions often look at your relationship with them and not just the credit score. Plus, the APR they are allowed to charge is capped at 18%, while other bad credit lenders can go up to 36%.
- Online Lenders – Several online lenders offer bad credit loans. Some will have very low credit score requirements, while others may still require a score of 550 or higher. You often get fast funding and help build credit with these loans.
- Alternative Lenders – Lenders outside the traditional type of bank, credit union, or online lender may offer loans with bad credit. For example, Upstart is an option that looks at more than just your credit score. This specific option doesn’t have a minimum credit score requirement.
There are many ways to get a loan with a bad credit score. In some cases, it’s best to improve your credit first. However, consider these bad credit lending options if you need a loan for an emergency.
