Because of the COVID-19 pandemic, gaining access to a new credit card or a loan has become harder and more complicated. Also, if you have got bad credit, it is even more difficult. According to Federal Reserve data, banks have heightened or strengthened lending standards in 2020 across all categories.
Take note that creditors and lenders use the information on your credit report and your credit score to ascertain your creditworthiness. Or to determine the risk that they may deal with by letting you borrow money.
If, for example, you have a poor credit score, lenders and creditors might see you as a risky borrower. Thus, making it hard to earn favorable terms and loan approval. However, bad credit does not cling onto you forever, and when you need to take out a loan, there are several ways to get approved for the loan with bad credit.
How To Determine If You Have Bad Credit
You must know where you are starting to find out what you are qualified for and start boosting your credit score. For the most part, you can see your credit report for free online. You are authorized to a free credit report every week through April 2021 from each of the credit bureaus: TransUnion, Experian, and Equifax.
Keep in mind that each creditor sets its own criteria for examining credit, and one lender might gauge your credit score differently from another lender. However, you must have an idea of where your position is among credit users.
Credit scores usually range from 300 to 850. According to MyFico, here are the credit ratings of the FICO score range:
- Exceptional: 800-850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Very Poor: 300-579
These score ranges can, for the most part, significantly affect the amount of interest charged on your loan. Say, for instance, if your credit score falls under a FICO score range of 500-589 (Fair), you will pay at least 16.4 percent interest on a 5-year car loan.
What’s more, remember that you don’t need to have a history of squandering credit to have a low credit score. If, for example, you are starting out without any credit history, it can lead to a thin credit score. Thus, making it hard to access products that can boost your credit. Also, take note that even with bad credit personal loans have no guaranteed approval.
It takes a lot of years of healthy credit usage and timely payments to achieve a stellar credit score.
Getting A Loan With Bad Credit
There are several ways for you to get a bad credit loan, here are some of them:
Credit Builder Loans
A credit builder loan can be an excellent option to build up a stellar payment history, particularly if you do not need access to the money right away. Rather than receiving money upfront, you will have a set loan amount and term, which you will make monthly installment payments.
Moreover, the creditor reports these monthly installment payments to the credit bureaus. And every month, this amount will be sent into an account, for which you can access at the end of the term of your loan.
Payday Alternative Loans
Consider payday alternative loans that are offered by credit unions instead of the ongoing debt cycles and risk astronomical interest rates with payday creditors. These loans range from 200 to 1,000 dollars, with loan terms between 1-6 months.
Although you’ll pay high interest, if you create a robust debt repayment plan, payday alternative loans can be an excellent option and much more inexpensive than payday loans.
This option is a great alternative to conventional loans. Rather than borrowing money from a credit union or bank, you can utilize online services like Lending Club to find investors ready and eager to loan cash to borrowers.
More often than not, you can receive a decision right away, and loan terms vary. Your loan terms are still decided and set on by your credit history. Also, you need to pass a credit inquiry to obtain a loan.
However, peer-to-peer lending might help you earn better rates or qualify for a loan easily, even with bad credit.
It is undoubtedly an uphill battle to access loans when you have poor credit. However, it is not hopeless and absurd to look for a creditor, even as most institutions strengthened their lending criteria because of the ongoing recession.
If, for example, you have bad credit and need access to money, be sure to assess your overall financial situation: Set a budget, put your debts in order, explore hardship assistance or forbearance, and create a plan. Also, ensure that the loan you are planning to get is driven or due to your actual need.