After declaring bankruptcy, foreclosing a home, or even after opening a line of credit for the first time in your entire life, it can be difficult to take out a loan simply because of your low credit score. When your score is below six hundred, lenders have a hard time placing trust in you that they will get their money back. However, there are ways that you can still get the cash that you need even with a score of less than six hundred.
Find and Take Out Specialty Loans
There are a number of special financial institutions and reputable lenders on the market today that specifically lend to those individuals with low credit scores. The terms of these loans may differ, but you will have to do your research to see which lender is more likely to accept you based on your score and your other financial circumstances.
It is important to note that when shopping for loans that are good for people with bad credit, you should try to never take out a payday or title loan. If it is for an emergency and your credit is this low, then those may become feasible options. However, if you can avoid it, you should. While those two loans work in different ways, you should not take out either one of them for the same reason: both of them can be extended if you cannot pay on the date that the full amount of the loan is due, but in doing so, you accrue massive fees and have to pay an exorbitant amount of interest that would add on to the existing interest, principal, and fees from the first time that you missed a payment. No matter what loan you take, do not take either of those types of loans.
You may have an added advantage for taking out some types of loans if you are or were an active member of the military. Members of the military or retired members are eligible for some loans that typical civilians are not, and some of these loans are more gracious when it comes to credit scores and things of that nature. If that applies to you, then browse through some of the VA loans available for you, and some of them will have lower credit thresholds than others, and could be the loan that you are looking for.
Have a Cosigner for the Loan
If your credit is not high enough to take out a loan by yourself, then consider having a cosigner take out the loan with you. A cosigner is someone who signs the loan with you and helps you make payments whenever you fall behind. The loan is not their legal responsibility or their responsibility in the eyes of FICO, but if the loan payment goes according to plan and can boost their credit score, then they are allowed to report it and possibly have it boost their own credit score.
Your cosigner should be someone that you can trust to have your back during a time where you are financially vulnerable. Some financial institutions may also require your cosigner to have above a certain score so that they can cosign for you in the first place. This is just so the lender knows that between the two of you, someone is going to pay off the debt. If the lender requires that both of you have a minimum credit score requirement, then seek a different lender that is willing to work with your needs, because they do exist.
It’s All in the Credit Card
If you have a low credit score, then one of the main reasons may be due to credit card debt in the first place. One way that you can take out a loan is to finish payment on that credit card before taking out the loan that you need. There are a number of advantages to doing this before taking out your loan.
First of all, because financial history makes up thirty five percent of what goes into your credit score, either showing that you were able to either start off strong and maintain a good trade line, or that you had a poor financial record that you were able to get back on track, are both ways to show that you are financially responsible. Doing this will help you improve your overall credit score so that you will be more likely to be accepted for the loan and so that you have a higher overall FICO score going into the financial future. This will also help you only worry about having to pay off one debt at a time so that you don’t get overwhelmed by both credit card and loan debts.
Another option is to take out a new credit card to raise your score and then seek a loan. That way, you can work with the new credit card and get your score up before taking out a loan. This piece of advice helps if you are also considering closing the credit card that you had the debt on, but only do this after you have had the new card open for a while. That way, your credit score will not be so negatively impacted, as length of credit history is one of the main factors that FICO considers when determining your score as well. This option will take the longest time of the three, but it is also the one that could help your credit score the most, as well as get you a loan while you still have this low credit score.
Knowing your options is one way to start brightening your financial future. One of these three methods should allow you to take out the loan that you need so that you can make a necessary purchase, despite having a lower than average credit score. Now, you know some of the options that you can take with you into the future, so don’t let your bad credit hold you back anymore.