When you have a bad credit history securing a loan becomes almost impossible. But still, there are ways to get yourself able to stand credible in the eyes of lenders for securing the loan.
Of course, when a person with bad credit history tries to secure a loan, the interest rate will be higher, and there are high chances of refusal. But less FICO score and bad credit history will still allow you to get a loan by taking the following steps.
Five steps to secure a loan despite bad credit
Step 1: Improvise your credit score.
Various websites and platforms allow you to increase your credit score by simply paying your bills monthly on time. The lenders usually have the least credit score limit. If you are unable to reach the minimum desired credit score, your application will be rejected. Before applying for a loan, you must know the minimum required limit of the lender and manage your credit score according to that requirement with the helping platforms. Always go for a trusted source to manage your credit score because you have to share your financial information with a third party.
Step 2: Compare your prospect lenders
Managing your credit score is not the only thing that you can do to secure a loan with bad credit history. It would be best to go for different lenders with varying interest rates and reread credit scores. You must go for the lender with less interest rate and a bit higher credit score required. This way, you will enhance the chances of securing a loan on your terms regardless of the bad credit history. There are different lending options as the bank is not the only one you have for a loan. We will discuss these lending options later in a separate portion.
Step 3: Go for a Pre-qualify check.
It pains a lot when expectations don’t meet reality. The same goes with the process when you want to apply for a loan and get refused. You must get a pre-qualify check from a trusted source to save yourself from this hassle, waste of time, and effort. You can check on a website, app, or some real organization by watching the gap between their requirements and your condition. This way, you will be able to see your eligibility in real terms and will be able to save time to make real efforts. In addition, this process will help you look for specific ways to increase the chances of securing a loan in bad credit conditions.
Step 4: Add weightage to the application
When you have a cosigner with good credit history and are willing to pay the loan on your behalf if you default, things change dramatically. According to your cosigner’s credit history, a lender will be willing to loan you more amount and score on the lower rates. If you don’t find a cosigner going for a secured loan can also do the same wonders as o the cosigner. Secured loans mean adding some collateral in the loan terms like a car or investment account. This way, you show your worth to the lenders who can take the collateral as you won’t default or become unable to pay the loan.
Step 5: final document check
When you are applying for the loan, there are high chances that your lender will inform you of the decision the same day. Most of the lenders will take only a few days to make the decision. You will need to provide your social security number, W2 form, and financial statement. The final check of all the required documents before going to the lender will help you save the hassle and wastage of time.
Effect of Bad Credit on your loan application
A bad credit score is a red flag for the lenders. Your bad credit history is because of late payments or not keeping your financial transactions and activities up to the mark. The lenders will consider your bad score as a risk for the amount they are lending you. Therefore, your bad credit score will make them increase the interest rate and offer you less loan than you could bargain for with good credit. Different lenders calculate credit scores differently. That’s why it always helps you cut a good interest rate deal when you go for more than one lender.
