Getting a loan or mortgage if you have a bad credit is still possible. But, you need to totally understand what you are getting into if you really want to get funds. Borrowers with credit scores that are lower will not have the same benefits compared to someone with high credit scores.
Bad credit shows multiple missed payments, collections or you have filed bankruptcy. Having bad credit does not mean lenders and banks will deny you. It only means that you have limited choices and will typically have to pay higher interest rates than you would be if you have a good credit history.
Let’s take a look at a few options.
Best Cards for Bad Credit With Great Benefits
Freedom Gold Card
This is a good card for people with poor credit. This card doesn’t require a credit check or employment check, which makes it an attractive offer for someone with poor credit. This application for this card is quick and easy and online. Another reason that this is great is because it does report to the major credit bureaus. If you make your payments on time and keep a balance less than 30% of your credit line, this will help improve your score.
Credit One Bank Unsecured Visa with Cash Back Rewards
This card is recommended for people with bad credit. This unsecured card includes rewards such as earning 1% cash back on your everyday purchases including gas, groceries, internet, cable and many others. The cashback rewards come in the form of automated statement credits which helps you pay off your debts. This card lets you choose a payment date, which will help you to pay your bills on time. It also reports to the major bureaus.
The Ideal Credit Score
For most lenders, the ideal credit score should be 850 but only a few consumers will reach this number. Once you have reached 740, it is easier to qualify for mortgages with the best interest rates.
If your score is in range of 700, you can still get a good interest rate for your loan. Loan applicants should have at least a credit score of 650 to be able to avail a decent interest rate. For conventional loans, a credit score of at least 630 is required by lenders. Below 600 interests rates dramatically increase.
Types Of Mortgages for Bad Credit
FHA Loans
FHA loans are the most ideal loan for someone who has bad credit because the Federal Housing Administration (FHA) are still willing to issue loans for individuals with very low credit scores of 550. This situation is greatly different from most banks that often require scores of at least 640. Banks require a high credit score because they want to lessen the risk of loss. As someone with a poor credit score, it would be a huge advantage to get a score of at least 580 so you can get qualified for an FHA loan and ultimately avoid risking your life savings with a high interest loan.
VA Loans
The Department of Veteran Affairs provides VA loans even if you have a bad credit score. On their official help page for VA loans, they that there are no minimum credit score requirement in order to avail their loans. They only require that lenders have to check your entire financial situation first and not just your credit history. This is a great opportunity for individuals who had bad financial mistakes in their past that destroyed their good credit history. The main disadvantage of this loan is it is only available for active and retired members of the military, members of the National Guard, reservists and the wife/husband of dead veterans. They should also meet the requirements for minimum time served.
Advantage and Disadvantages of Loans with High Interests
Getting loans with high interest gives you the opportunity to improve your low credit profile or get the funds that you need. It might mean having to pay hefty interests but this will show lenders that you are still a trustworthy borrower. If you are willing to take the risk and take a well-planned approach to repayments then this could work for you. If you have a loan with higher credit, starting to repay it back will ensure you that your credit history is improved. The clear and obvious disadvantage of them is the high rate. So, carefully think if you are willing to accept it and can afford it before making a decision and signing the application.