Even though no one wishes to have a poor credit history, many people have bad credit because of situations they find themselves in. People can have poor credit history for many different reasons. As an example, if you miss settlements, maxed out your bank card or have bad remarks on your credit records, such as a note about personal bankruptcy or a house repossession, your credit history you will have a poor credit history.
Whenever someone mentions a “credit rating”, they are commonly referring to your credit history records and your credit rating. In the same way lending institutions typically take a look at both when making a decision whether to accept you for a loan or not.
You are not necessarily a bad person to have a bad credit history. Having a bad credit simply means for whatever reason, you haven’t managed your finances very well. Not being able to pay your bills when they are due will affect your credit score.
Good credit can help you to get a loan at a more favorable rate. However, if you have a bad credit history, you will pay more for the loan.
So what should you do if you need a loan but have a bad credit history?
About 40% of Americans with bad credit but want a loan didn’t apply for it because they simply assumed that because of their credit history they could not be approved. Rejection of a loan because of your credit score is a possibility, yet poor credit history does not always suggest you’ll be denied the loan you want.
Some even think that their only option is to get a payday loan with less stringent requirements. However, before you consider going for a payday loan because of your credit history, see if you can get an installment loan that you will pay over a longer period of time, despite your bad credit history.
In case you are wondering, payday loans are very high-cost loans with short payment terms of no more than 30 days. It is usually given for up to the following payday. Hence the name payday loan.
What Really is a Bad Credit History?
Every loan application is assessed based on a credit score, very much like a GPA score that you get at school. In university, you are awarded credits for each subject you studied and then when the semester comes to an end you would receive your GPA. The GPA score is a single score based on the different subjects you took during the semester. When someone needs to assess your performance at school they can use your GPA score to see how well you did at school.
Credit scores work in the same way. All your credit history and the credit scores are kept by credit reporting agencies and any lender can make reference to it when they are considering your loan application. When they look at your credit score they can tell how well you have done in terms of making all your bill payments when due.
A bad credit history depends on a person’s credit score held by the credit reporting agency. Many of the credit reporting agencies calculate credit scores by using so-called credit-scoring models. However, FICO has a model that many loan lenders can use to access loans based on credit scoring. Their scores range from 300 to 850 as explained in the table below:
Poor Credit: 579 or less
Fair Credit: 580–669
Good Credit: 670–739
Very good Credit: 740–799
Exceptional Credit: 800+
Credit ratings are rising gradually. For example, in 2017, the average credit score in the US was 700, which is the highest average credit score there have been.
Although the good credit range is between 670 to 739, people having credit scores less than 670 will have a challenge being approved for certain types of loans.
Getting approved for a loan with a credit history of the 500s might be tough and expensive. However some alternative lending institutions, like cash advance lenders, may not even check your credit history whatsoever to give you a loan, but they will charge you really high rates of interest.
Different Lending Criteria By Lender
The lending requirements of many lenders are the same. However, some lenders have their own criteria for lending. You will only get approved for a loan by them if you meet their lending criteria. However, credit scores still play a major part in setting these criteria. That is why some lenders will give you a loan even if you have a credit rating of less than 670 but others won’t approve you for a loan.
In setting their lending criteria, lenders also take into account your debt-to-income ratio, to make a decision whether to approve your loan and what interest rate they should charge you.
Lenders considering a loan application frequently take into account your debt-to-income ratio to decide whether or not they will grant you a loan. To determine this number, the add all your debts and then divide that by your gross monthly earnings. The lower the ratio the better your chances of being approved for a loan. This helps lending institutions to know if you’ll have the ability to pay for the month-to-month payments if they grant you credit.
Can I get finance with poor credit report?
Some might assume that their bad credit scores imply that their only alternative for getting a loan is to utilize alternative types of loans such as cash advance or auto title loans. This is because these types of loans do not require a credit check. However, such loans can be incredibly costly in the long run.
The 2014 Customer Financial Protection Bureau report shows that about 80% or more of payday loans are renewed, or even when the loan is paid off, the borrowers take another loan from the same company within 14 days of paying off the old loan. This happens from month to month, thereby keeping the borrower in perpetual debt to the payday loan company.
In that situation, the APR for the loan can be close to 400%. The APR takes into account not only the interest rate but also all other charges relating to the loan. Some lenders charge registration fees just to have the loan. Others charge redemption fees to terminate the loan and many more charges like that. When all of these are taken into account, this is what pushes the APR to the region of 400%. To see how bad this is, just compare it to the APR of a credit card which is typically around 30% per year.
Because of this, if you have bad credit and can’t get a loan from a bank, a much better choice is to look for loan providers that will deal with individuals with bad credit. Contrary to what you may think there are private loan companies which will give you a bad credit loan which is better than using payday loans.
As well as if you can potentially turn it, try saving up for big purchases and emergencies prior to they occur. In this way, you don’t require to worry about tackling financial obligation until it’s absolutely required and can rather focus on boosting your credit report.
How much can loan with poor credit scores cost?
Even though you can get approved for a personal loan, despite your bad credit history, please remember that such loans can be expensive with a higher APR, although not as bad as payday loans.
If you have a good credit score and your debt to income ratio is also good, you could get a loan from a proper bank at an affordable rate. For example, you may get a loan from a bank with an interest rate of 9.33% per year. This means that if you borrow say, $1500 for 3 years to fix your car or to pay off some urgent bill, you will only pay about $47.97 per month. The total interest charged for the whole of the three years will be only about $225.49.
Compare this with getting a loan from a private loan company at a typical rate of 45% APR. For the same amount of $1500, you will pay $76.61 per month, with a total interest charge of $1,257. This is almost double the amount you borrowed. Therefore, although you can get a bad credit loan, consider the cost of the borrowing and if possible save up for the purchase.
Don’t Be Stuck With a Poor Credit rating
The very first thing you must be aware of is that, if you have a bad credit history, it does not have to be like that forever. You can change your credit history for the better. Even if you don’t do anything about it, most bad remarks on your credit report will be removed after 7 to 10 years.
This means even if you have bankruptcy note on your credit file, it will disappear after 10 years or so. Better still, you can take proactive action to fix your bad credit history.
One of the first things to do is to check your credit report to see if everything on it is correct. In 2012, The Federal Profession Compensation report indicated that around 25% of people in the found many mistakes in their credit history that gave them a bad credit rating.
checking your credit history to find errors and removing them is one of the easiest things you can do to improve your credit history.
The other thing you can do is to make an arrangement with your lenders or their representatives to pay off the debts on your credit history that is giving you bad credit history. Check everything on your credit file that impacts your credit negatively.
Also make sure that for all future credit you get, you keep up with the payment schedule and make the payments on time.
You Can Get A Loan With Bad Credit
Getting a loan with bad credit is not very difficult as you may imagine. It is possible to get a loan with bad credit. There are lenders whose business is primarily lending to people with bad credit. You just have to look for such companies.
One hidden advantage of taking a bad credit loan if you have bad credit is that it will help to improve your credit history. If you keep up with payments and you don’t default on the loan this will improve your credit score