Even with bad credit, loans are a possibility for many. Whether it’s for unexpected expenses like medical bills, car repairs or something else, having bad credit shouldn’t be a deterrent that prevents you from trying.
If bad credit wasn’t a concern and your credit rating was good, you could apply for a secured personal loan through a bank or credit union and get a preferential interest rate and terms. With bad credit, loans can be more challenging to get approval, but there are options available.
While many assume that having bad credit means the chances of getting a loan are next to impossible, the opposite is true. There are many lenders that will consider offering a loan, but you should know that the interest rates tend to be higher than what your bank might charge.
Why You Should Care About A Bad Credit Score
Unless you’re born into money and don’t have to think about it, practically everyone needs to be concerned about their credit score. At some point in your life a loan is likely something of interest. You might want to buy a home, car, pay for your children’s tuition, have another big purchase in mind, or simply want a credit card. The higher your credit score, the more likely you will qualify for credit, and the better the terms and interest rates will be available to you. Having bad credit can also make it more difficult with getting a rental application approved, insurance rates, or even getting a new cell phone contract.
From Bad Credit to Good Credit
While it will take considerable time to improve your credit score, it’s never too late to get started. The place to start is to find out your actual credit score and where you stand. There are numerous options available online to receive a free credit report.
Another place to start is to take a look at your bill paying habits. Are they being paid on time? This is essential to building and maintaining a good credit score, so finding out where you may have gone wrong in the past is an important step. Also look at whether you carry balances on credit cards. If so, try to find any factors that could be having a negative impact. Looking for errors on your credit report is also a crucial step towards fixing your credit.
Paying your bills on time, paying down debt, and avoiding new hard inquiries are all ways to build a better credit rating, along with maintaining a good credit utilization ratio.
Basics of How A Credit Score is Determined
Your payment history accounts for as much as 35% of your credit score, and factors like whether you have always paid your bills on time or have had late or missed payments in the past is considered.
How much credit you have available is referred to as credit utilization ratio, which is in reference to how much of the credit available to you that you are actively using. This is the second biggest factor of your credit score, and a good credit utilization ratio is under 30 percent. If you have an amount of $1,000 credit available to you, then you would want to ensure that you keep your balance below $300 to maintain a good credit utilization ratio.
So What Is a Bad Credit Score?
A credit score above 670 is considered good, between 580 and 669 is considered fair, and below that would be considered poor or a bad credit score. The main credit bureaus like Experian, Equifax and Transunion are often the more common ones that are checked, but there are others with similar ranges and ratings like FICO and VantageScore.
A bad credit score can be improved when you carefully manage your personal finances, credit cards and maintain a good history of making bill payments on time. While it can take time to improve your credit rating, it can provide you better rates for personal loans and options that only a good credit rating might be able to provide.
How a Bad Credit Score Can Impact You
Having a bad credit score can lead to so many things that might not be considered. If you move into a new home you might need to make a security deposit for utilities like gas, electricity or water. With some car insurance companies (excluding California, Hawaii and Massachusetts) a credit report can be used alongside your driving history to assess your potential risk of submitting a claim. If looking to rent a house or apartment, some landlords will conduct credit checks in order to evaluate your payment history, to evaluate whether you’re likely to pay rent on time.
But even with bad credit a loan is still possible for most, including those with no credit at all. Having a bad credit score doesn’t necessarily mean you wouldn’t get approved if you apply.