Credit score is known for the history of credits like wherever you spend money and pay bills of house, electricity or phone. It represents the risk factor to the lenders to lend money
. The scaling of credit score is between 300 and 850 and if you have a higher rating then you can be more reliable to the lender.
Who calculate your credit score?
There are 3 bureaus for this, named as:
These three agencies calculate your credit score so that can be possible that you are getting separate scores from these three if your lender forget to report any of these. So, one model handles all these i.e. VantageScore. Exactly, how FICO handles many more models. But the standards of calculating scores are almost same like the following:
- Is there any debt on you and if yes, then how much?
- What is the limit of your credit among which how much you’ve used?
- What kind of credit you are using like Title loan, House loan or credit cards, etc.
- Credit report is also investigated properly.
So, you must keep a check on your scores regularly.
bad credit score loans
Score range is from 300-650 and netizens who have less than 579 scores are the people with bad credit ratings. And from 580-669 is considered as average scores.
To get an approval of loan, bad credit can affect the chances. So, to not get difficulties in the future to get loan, your score must be higher than 669 which consider as good, very good and excellent score.
What you can do if you want to convert your bad scores into a good one?
- Sometimes, we forget to pay our bills before due date and creates a bad impact on scores. So, you can set your payments automatic. This would help you to pay your monthly bills on time.
- You can pay your credit card bill by paying more than a minimum amount monthly. As high debt of the credit card can damage your score very fast.
- You can keep your eye on interest rates of credit card and try to repay debt with a high rate of interest to get rid of paying extra money.
- If you have any unused card then keep it open.
- You can ask someone to become your co-signer if in the last you can’t do anything. But this would be a chance for you as well to improve your credit score for future.
If in case, you are not in the condition of using credit card then there is one option through which you can build your credit history and that is Secured Credit Card. Its function is same as normal debit card. The amount that you’ve deposited, is allowed to use, no more than that. Hence, paying your bills on time can improve your scores.
Once, one of my friends, was in trouble due to an accident of his brother and he needed to pay hospital bill for the operation of his brother. Unfortunately, that was the month end time and he didn’t have enough funds for that. Not even we have so that was really bad time for him. So, I suggested him to take any loan if possible. But he was not aware about loans and when he asked one bank for that then they denied him because of his bad credit history.
Then, one employee of that bank guided him about bad credit loans. There are two types of loans used for bad credit:
- Secured Loans: which require some valuable thing like gold or property as a security for the loan with normal interest rate.
- Unsecured Loans: which do not consider any collateral for a loan and minimal docs required for this but rate is higher than secured loans.
And, my friend didn’t have anything to secure the loan so he opted to unsecured loans. For which he had to pay a large rate but there was no other option. And from that time, he came to know about the value of credit scores.
One question always comes into mind that if it is compulsory to put something as a security to get loan if you have bad score?
And the answer is no because there are two types of loans as listed below:
Secured loan for bad credit:
When you have bad credit history, it seems risky to the lender to lend money but it doesn’t mean that you’ll not get loan. It may effect the amount as lender will not risk on big cash such as for some it’s the limit of $1000-$2000, but for some it may be bit higher.
You can borrow secured loans from credit unions, banks and offline lenders too. As the rates of banks are quite genuine but may get bit higher due bad credit score.
In these loans, lender have full authority to seize your collateral and get their money by selling that. That is why it is less risky for lenders and there are more chances of getting approval for the application.
Unsecured loan for bad credit:
Unsecured loans for which you don’t need to put anything as a security. Few lenders offer the personal loan even if you don’t have credit or have bad credit score (less than 750). You can choose one option from the following:
- You may ask to your bank where you have an account or have previous relation of loan or credit card. Maybe they can offer you personal loan for the sake of customer relationship.
- One option is to approach Non-Banking Financial Companies whose requirement of score is less (nearly 650) and the chances are more to get approval.
- You can search online lenders also (peer to peer) who provide loan on the basis of monthly earnings.
- The other one is to get a guarantor for your loan, who can give guarantee to the lender for refunding of debt. But it would be negative for that guarantor if you’ll not be able to repay.
Here are some factors to compare between secured and unsecured loans:
- Secured loans are a bit easy to approved as compare to unsecured loans because in the former one, lender will get security and will able to trust you.
- The rate of interest in secured loans is less unlike unsecured ones as you’ll not provide any collateral but somewhere you have to pay for that to get approval.
- Documentation is very much in secured loans but for unsecured, you just need few docs.
- The higher amount can be borrowed from secured loans in contrast with unsecured loans.
Debt merger loan:
Other option is to get a debt consolidation loan that means where you can merge all your loans together. These loans are best when you have several loans and unable to manage all of them due to which your credit score goes down.
This is the best method to get rid of worries of so much debt. It’s most probably unsecured kind of loan and you can consult your lender if you have a bad credit check.
What loans you can get if you have a bad credit score?
- Personal loan: Bad credit personal loans are those loans which are taken for any use, either for bill payments or for routine expenses but with not so good credit rating. This loan comes under both circumstances (secured and unsecured). For this credit union of your state can be an appropriate option to consider.
- House loan: Mortgage loan with bad credits can be possible but you have to get prepared for the heavy rate throughout your debt cycle. For bad credit people, FHA (Federal Housing Administration) is the best option to choose. And in this, you need to put your house as collateral which means if in case you get failed to pay your debt then the lender can take hold on your property.
- Automobile loan: This is the loan for people who want to purchase vehicle and it can be possible for those as well who don’t have good credits. But you have to compromise with APR as it is higher for bad credit scores. This loan is different from an Auto title loans, so don’t get confused.
- Payday loan: Loans which are instant and can be approved within an hour are known as payday loans. These loans can be refunded in a whole lump-sum amount at once on paycheck date. It doesn’t require any credit history for the acceptance of application. The loan amount is typically less (nearly $50-$1000) with the term of 7 days to 60 days. The APR for this is really very high i.e. around 300%-400%.
- Title loan: In such loans, you have to put your vehicle as a security. And the amount of loan totally depends upon the value of your automobile. Refund time for title loan is around 2 years only because with time the value of your vehicle decreases and if you’ll not pay back your debt then lender can sell your car to get his money back. That’s why the loan amount is always bit less than the value of collateral.
Now, the most important thing to consider is to know if you really have bad score or lender is making you fool by saying this to get extra interest from you. So how can you be aware about this?
- If any lender charges fees for applying to the loan then you can straightforward say no because it’s not legal to charge for filling.
- If a lender is giving you surety of loan prior checking your documents and eligibility then you must be aware because it’s not possible at all.
- You must be cautious if a lender is contacting you enormous times via calls or mails as the reputed lender companies don’t do this.
- Don’t share your personal data before knowing properly about the loan. Consider only trustworthy companies.
- Take some time for proper inspection of the lender as it’s the matter of money and you should be aware about it.
What you can check while opting the lender?
Apart from interest rate, there are a lot more elements that you should know:
- Limit of loan: You can find that lender who can provide you that much amount which you need as most of the moneylender provide less amount to the bad credit borrower.
- Refunding time period: Try to search a lender which do not seal you for prime terms. It would be beneficial for you if you want to refund debt early to save the interest.
- APR: Actually, to get low APR is not possible in case of bad credits but you can search for the lender which can provide you best rate as per your scores.
- Name of the Company: You must find out that if there is any name and fame of that company or lender in the market. As, reputation is the sign that you can trust that lender and for this you need to check reviews of their customers.
- No complex procedure: Check if the process of application is easy because in complex systems there are many things which a lender can hide. Try to be simple and easy so that the whole procedure would be understandable.
Few concepts that you can do if you have a bad credit score:
- Firstly, take proper knowledge of loans for which you are eligible and their alternatives as well. You can ask directly from the banks or other lenders.
- Try to get co-signer loan, in case of a bad score if possible. Because it can protect you from the high rate of interest.
- You must compare services of two to three lenders such as their rate, APR, other extra charges.
But still if you have any other option to get out of your situation then try that first because the cycle of debt can make your situation more unpleasant, especially, in case of bad credit due to higher rates.