Applying for a Loan With Bad Credit? Here Are the Things You Need To Know

Having a bad credit doesn’t indicate that you’re a bad person already. However, if you’re on a bad credit, it may hold you back from getting a loan at the best rates. Many people end up in this kind of situation even if no one wants to have a bad credit. Your credit history is considered as a tracking record to how well you use and repay the credit. Bad credit makes it difficult to get loans, meanwhile, good credit makes it easier to get loans at good rates. You might ask, is it possible that I apply for a loan with bad credit?”.

A Federal Reserve study conducted on 2014, 40% people who were surveyed said they wanted to have access to some type of credit but did not continue their application since they have the thought that they might not get approved. However, bad credit doesn’t necessarily mean that you can always be rejected for a loan. Low scores should not stop you from considering a loan. So before you do borrow any type of loan, here are some things that you might want to consider before applying for it with bad credit.

Understanding Credit Score

For you to easily understand how credit report and credit scores work, let’s relate it to college. In college, you have various subjects such as math, economics, history, and psychology. For each subject, you receive individual grades for every assignment and an overall grade at the end of the course. At the end of the semester, you’d be given one single score or what we call GPA. Your GPA is computed based on the overall work you’d done earlier in all your classes.

That’s just the same with how we perceive credit reports and your credit scores. Your credit reports contain a record of the money of you owe, the aspects of how you owe the money, and your history payments. Your GPA is more like your credit score, calculated based on the information from your credit reports. Lenders take a look at it because it will help them understand how well you’ve managed credit.

Most often, “credit” as a whole is both your credit reports and your credit scores. Lenders generally look at both when determining whether to accept you for a loan. They would first look at your credit as a basic basis of how trustworthy you are as a borrower.

Credit-Scoring Models

Companies create credit scores through credit-scoring models. Some have their own way of generating scores, but multiple companies use the FICO model scores when evaluating credit applications. Base FICO® scores range between 300 and 850.

Here are their credit ranges:

  • Exceptional: 800+
  • Very good: 740–799
  • Good: 670–739
  • Fair: 580–669
  • Poor: 579 and lower

Last April 2017, the average national FICO score was 700. According to FICO, this is the highest average had ever been. However, those who have credit scores less than 670 may have more difficulty getting approved for some types of loans.

You can have bad credit for plenty of different reasons such as missing payments on time, maxing out credit cards, or having unfavorable marks on your credit reports like bankruptcy, or a foreclosure, making your credit scores to fall.

Bad Credit Loans

When you’re in bad credit, your applications for loans (personal loans, cash loans, unsecured or secured loans)  will most likely to be rejected, making this more complicated for you. This is where bad credit loans enter the picture. This kind of loan is particularly provided for those with poor credit histories, assisting them to recover with their finances. Lenders of bad credit loans will offer you another chance to prove yourself as being dependable with money.

Take note that loans are not there for you to drag you up, they’re to be utilized. Whatever amount of money is lent to you, you must give it back. You can’t just think of it as good faith, you should spend the money in a wise manner and repay it on time.

A bad credit loan is there to help you in restoring your credit history. The key here is to be responsible because even some of the most friendly lenders out there won’t lend you funds if they are not that confident seeing you as a reliable borrower.  So, if you got approved for bad credit loans, make sure that you can repay them back because this will help you to get back on track with your overall credit score. This will open more doors for you to apply for other types of loans later on.

The Use of Bad Credit Loans

You should not misspend your bad credit loans. Never do it. Remember that this is your last resort with the reality of your situation if you have a poor credit score. Yes, a bad credit loan can be highly useful but no one wants to find themselves in this kind of situation.

You will even learn to appreciate the true value of bad credit loans if you can completely understand that it’s best used as emergency money. These loans will surely save you from desperate times and are a fast answer to a short-term emergency that was not expected.

Bottom Line

Having a bad credit should be a temporary thing. Your derogatory marks, late payments, foreclosures, and even bankruptcies will move out from your reports after seven to ten years. Securing a loan may be tricky and confusing but don’t lose hope. Even if you have bad credit. it is still possible to find credible lenders who will work with you.

Whether you’re taking out a bad credit loan, a personal loan, or payday loan, and the like, you need to make payments on time as this will help improve your credit scores and have better credit in place.