Over 11% of the US population has a credit score under 550. Since a score under 580 is considered “bad credit,” that leaves a significant number of people who have very bad credit. A low credit score can affect your financial goals.
You may wonder, “does bad credit affect my ability to get a loan?” Unfortunately, the answer is yes. It may make it difficult to get approved for a loan and get good rates and terms. Luckily, there are steps you can take if you need a loan and have very bad credit.
Improve Your Credit
Improving your credit is a long-term game. It can take a while for any changes to happen, so it’s important to start as early as possible. But, once you get better credit, you’ll start gaining all the benefits good credit gives you.
Once every 12 months, you can request a copy of your credit report from the three credit reporting agencies for free. Check over your credit report for any errors or negative entries. These can adversely affect your credit score and make it even harder to be approved for a loan.
If there are errors, you should start the process of disputing the errors. You can also try to remove old debt from your credit report. This can be especially helpful if negative history is reported.
You should work to pay down debts and credit card balances. High balances may negatively impact your credit score. Reducing your credit utilization rate can be a somewhat quick way to raise your score.
Plus, lenders may take a look at your debt-to-income ratio. This number tells lenders what percentage of your monthly income is used towards debt. Under 50% is usually needed to be approved for a loan, but even lower may make it easier to be approved.
Make sure to catch up on any late payments for debts or even bills. Over the long term, it’s important to continue to make all of your payments on time. Setting up automatic payments may be a way to make this easier.
Contact Your Creditors
Contacting your current and past creditors may make it easier to be approved for a loan. If any debts are in collections, you can try a pay-for-delete offer as a way to remove the negative marks from your credit report.
You can also ask your current creditors to pause or lower your monthly payments temporarily. This may help free more money for your other financial needs. The creditors may be able to point you towards financial assistance, debt relief, or a debt counseling program as well.
Improving your credit score can open up better rates and terms, saving you money on your loan. But if you need a loan sooner, there are still some steps you can take.
Shopping around can help you see which lenders offer the best rates and terms. While they may not be the best if you have very bad credit, it may be possible to still get decent ones. Lenders that offer bad credit loans sometimes look at factors other than your credit score.
Check with a community bank or credit union, especially if you already have a relationship with them. They may work with you more and possibly even offer better rates since they know your financial habits.
There are also a variety of online lenders that may offer loans even with subprime credit. Just be sure to watch out for predatory lenders. They may offer rates that seem great at first but skyrocket later.
Consider Alternative Loan Options
If you are denied a loan, there are other options to consider. You could ask friends or family for financial assistance. Just be careful, as this may lead to some awkwardness in your relationship.
Another option is to ask a friend or relative with good credit to cosign a loan with you. Their good credit can make it a lot easier to qualify and be approved for the loan. Plus, you may save more money by getting lower interest rates and better terms.
You can also consider using collateral to have a better chance of being approved. For a secure loan, you offer something you own, such as a car or savings account, as collateral for the loan. You might be able to get better rates and have a higher chance of being approved.
Just be sure to make your payments on time if you choose a secured loan. The lender can take the collateral if you miss your payments.
Explore Debt Settlement
Debt settlement, also sometimes called debt relief, can offer another alternative to bankruptcy if your financial situation becomes overwhelming. It may be a good option if it’s hard to make minimum payments or you fall behind on them.
This can also be helpful if you don’t have enough money to pay off debts or experience unexpected job loss or medical expenses.
A debt expert works with you to see which debts qualify to be enrolled in the debt relief program in debt settlement. You then deposit a set amount every month into a savings account.
Negotiators use the money in the account to negotiate your debts even lower. Once the creditor and negotiators reach a settlement offer, you can agree to it. Finally, you pay off the settlement amount to resolve the debt.
Debt settlement can help you free up money while having to pay less each month towards your debts. It may provide the jump start you need to get ahead in your financial situation as well.
How to Get a Loan With Bad Credit
If you have very bad credit and need a loan, it’s important to take steps to improve your credit and other aspects of your financial situation. You can shop around and investigate alternative loan options.
Debt settlement can also be a great way to get your finances on track so you can be approved for the loan you need. Contact Alleviate Financial Solutions to talk with a credit expert today.