Getting a loan with bad credit can be difficult, but it is not impossible. There are several ways to increase your chances of being approved for a loan. We have asked experts how to get the loan you need, even if you have bad credit.
How to get a loan with bad credit?
1. Understand how your credit score affects interest rates
Generally, the credit score is the most important factor in deciding the interest rate that a lender will offer you. “Many lenders offer payday loans to borrowers even they have bad credit,” says Jamie Jenkins, a finance expert at Coll.
Regardless of your credit score, it is important to check rates with multiple lenders to find out who will offer the best rate and terms. “If your credit score is low, do not assume that if only one lender refuses to give you a loan, you may have to apply to several lenders before getting an offer,” says Jenkins.
2. Get your last credit score
It’s one thing to think that you have bad credit, and another to know how bad it is. The rating company FICO issues five categories of credit score:
- poor: 300-579
- just: 580-669
- good: 670-739
- very good: 740-799
- excellent: 800-850
It’s always a good idea to have an idea of your credit status before applying for a loan. Companies like Malm publish for free an accurate approximation of your score, with no limit of control.
You do not need to have excellent credit to get a loan, but as your score decreases between “very good” and “good”, between “fair” and “mediocre”, the rates and Offers from lenders change. are willing to give you – if they are willing to give you a loan.
3. Calculate your debt ratio
Some lenders also calculate the debt ratio of a potential borrower – how much of their monthly income is dedicated to debt – to help decide whether or not to make a loan.
You can find your debt ratio by a simple calculation: Divide all monthly debt payments by gross monthly income and you get a ratio or percentage (once you have moved the decimal point two positions to the right).
4. Consider a credit union
Credit unions are a great option for those looking to get a loan with bad credit. They are more flexible and cap their interest rates at 18%, says Marisa Peters, founder of Marge.
According to Allen, nonprofit status means that credit unions are tax-exempt and can accept riskier borrowers than banks and can charge lower interest rates and fees than banks. banks. Allen also argues that low credit may not be an inconvenience for a credit union because it takes into account the applicant’s overall demand and financial history.
5. Try to improve your credit score
Your credit score is calculated, approximately, with the following five factors:
- payment history (35%)
- Current debt balance (30%)
- length of credit history (15%)
- new credit (10%)
- composition of credit (10%)
Some of these factors are hard to change, as the length of your credit history.
But others can have a big impact in a relatively short time.
Note that improving your credit is a marathon, not a sprint. If you take steps in the right direction, you will see that it will pay off – and the next time you want to apply for a loan, you will be in a better position.