When it comes to bad credit, it can feel nearly impossible to get a loan. If your credit score is lower than 601, then you probably already know the difficulties. In fact, 30% of the American population or more falls below this line and have the same issues trying to get approved for a loan, credit card or mortgage. Let’s explore what it means to have bad credit and if you can still score a loan.
Why Is My Credit Score So Low?
There could be a plethora of reasons why your credit score is less than stellar. For many young people, it is simply due to a lack of credit history. For others, it means a few other possibilities, like:
Utilization rate is high: this means that you are overusing your credit which may appear that you are close to defaulting on a payment, even if you have paid everything on time.
High balances on credit cards: even just one high balance on a credit card will knock your credit score down a few points.
You have applied for too many accounts: every time a company does a hard inquiry on your credit score, you get docked points.
Defaulting: of course, not paying a debt does not look good on your credit report. Even just making small payments is better than ignoring it altogether. Do not let an unpaid bill get reported to collections.
Can I Still Get A Loan With Bad Credit?
The good news about bad credit is that you still have options for getting a loan. So the short answer is yes. The long answer is that you should only be seeking out a loan if you are truly in desperate need or experiencing an emergency.
The first type of loan you can still get with bad credit or no credit is a title loan. When exploring the idea of a title loan, you will find that your credit history is not even taken into account. Instead, the collateral for your loan will be your paid-off vehicle. The process is generally quick and easy with the ability to receive the cash the very same day.
Another type of loan that does not require an inquiry into your credit history is called a registration loan. It is very similar to a title loan. The difference being that a registration loan does not require your car to be paid off. You can still use it as collateral, but typically you will not receive as much cash as you could with a title loan.
Another possible way to get a loan with bad credit is to ask your friends or family for help. This can be a very humbling experience. You must understand though if you go this route, it can cause additional stress on your relationship with that person. Also, it will not help (nor hinder) your credit score in any way.
Lastly, you can find a co-signer. This is similar to asking a friend or family, but in this instance (if approved) you can work on bumping up your credit score.
How Can I Improve My Credit Score?
Your credit score is used to determine the likelihood you will pay back the loan. When your score drops below 650, you are then considered high risk which leads to denial letters from credit companies.
There is good news. You can switch it around and improve your credit score. The most important thing you can do is know what your score is and begin the process of understanding your history and status. This can easily be done for free on websites, such as Credit Karma. If you don’t know your history, it is certainly difficult to improve your score.
Take a look at your utilization rate (debt to limit ratio). If this is high, you can request to increase your credit limit. Just call your lender and ask if the limit can be raised. The best thing to do is pay your debts down, but you can also ask for an increase to make this limit instantly look better.
It is also possible there are mistakes in your credit report. When this happens, it can negatively impact your score. The first thing you need to do is to report it immediately. Reporting errors is free, but it can take time to fall off your history.
If you just don’t have a long credit history, only time can heal that wound. What you will want to do while you wait is keep up with all your payments, without defaulting, and keep that debt to limit ratio as low as possible.
Also, do not close an account. Closing a credit card account can make your history essentially disappear and you will lose points.
It is important to know that if you are in a financial bind, you can still have access to a loan, no matter what your credit score is. It is also important to remember that you should only take out a loan if you are in a true emergency. Building up your credit score is vital and can be done with tweaks and adjustments.