Yes! Money borrowers can borrow despite a bad credit score, it will just be a little challenging process. A credit score is a value that represents a person’s creditworthiness. It can prove that a person can pay his debts. Credit scores can range fro 300-850, the lower your score is, the lower is your chance to get a loan easily. But that does not mean that you can not borrow money at all. Here are some ways to be able to take out a loan despite having a bad credit score:
- Know How Your Credit Score Will Affect Interest Rates
Get your latest credit score first. Interest rates may be dictated by your credit score, this is how lenders apply interest rates. For example, you plan to apply for a personal loan and you need to justify to your lender that you have a sustainable income to pay it, an excerpt from Loanry’s website, an online lending company, says clearly that interest rate may be higher and they some penalties are imposed for late payments. So the lender may require you to provide proof of your gross income to check on the rate applicable for our desired loan amount. Some may reject you because they are not confident about your credit score, but do not lose hope, other lenders can give you fair rates, too.
- Know Your Debt-to-Income Ratio
Other lenders also look into your debt-to-income ratio, they want to know how much of your income is allocated to pay your existing debts, and if you can still take another debt to pay. You can get this ration by diving your monthly debt allocation by your monthly gross income. From here, lenders can already see if you can still be trusted to be granted to borrow money. The ideal ratio for them is no more than 35%.
- Think About a Credit Union
Credit unions are better options for a borrower with a bad credit score. They give flexible terms to borrowers and offer 18% interest. Credit unions can offer both unsecured and secured loans. You can likely borrow money from them because they do not only look at your credit score, but also credit history, income, and debt. In other words, they consider your whole financial background.
- Apply for a Secured Loan
This is easier for borrowers because they can give up collateral like house, car, a watch, or high-value properties for their loans and it will give lenders security with the amount of money that they will be risking for a borrower with bad credit. Other types of secured loans are mortgage loans and auto loans and some secured credit cards are also under this type of loan. To deal with a secured loan and avoid the lender to seize your collateral, make it a point to follow terms on your loan and this can build your credit up.
- Boost and Improve Your Credit Score
Having an idea about your credit score can make you plan for ways on how you can improve it and have a better score. Most credit scores are based on the following: payments history, debit balances, duration of credit history, and new credits on record. While some may not be easy to improve like duration of your credit history, you can make others have an improvement, for example, in payment history, this can be improved by enrolling payments to auto-debit transactions.
Having bad credit can still give you the chance to borrow money, you just need to be patient as this is not an easy process. You need to prove to lenders that you are capable of paying it and maintain a good credit score. The faster or the shorter time you will take to improve your credit score will allow you to apply for a loan the soonest that you need it and you will be in better credibility for your lenders.