Loan Options for Bad Credit
People who are coping with bad credit know how difficult and frustrating it can be to get a “yes” from a lender. Moreover, the constant rejection can be humiliating and degrading for subprime borrowers. Before you decide on the type of loan that you’d like to apply for online, it’s crucial that you get the facts and research your borrowing options so you can make the best financial decision possible. When shopping for a direct loan, you’ll discover quite a plethora, each with varying terms, conditions and interest rates. These factors will cumulatively determine your total expense during the life of the loan.
By definition, a loan is considered to be “unsecured” when it is not backed by personal property as collateral; rather, it is extended to you by the lender with just your signature on a promissory note to repay the money according to specific terms, rates, and a payment schedule. Keep in mind, when you need a loan quickly, cash advances and payday loans are certainly convenient and easy to qualify for, but we caution that these loans come at a high cost, with governing laws that vary from state to state. Although they do serve a valid purpose, they should be used sparingly or for emergencies.
The small, short-term loans like the ones we’ve just described, typically range from $100 to $5,000. Larger personal loans may require better credit scores and a proven ability to repay, such as verifiable employment and adequate income. Loan amounts above $10,000 will inevitably require “good” credit. Advertiser Disclosure
“No Credit” vs. “Bad Credit”
There are considerable differences between having bad credit and the mere lack of an established credit history. Many young people who are just starting out, for example, may not yet have a sufficient credit profile, and this is not the same as earning a lengthy, bad-credit profile marred by poor debt management, late payments, collections, and excessive spending accounts. Your credit is scored by the credit bureaus based on account handling.
Theoretically, a person with a newly established credit history and only one or two accounts contained in the credit profile could have a “good” score. However, lenders typically look at more than just your credit rating. For example, a lender will usually consider additional information, such as the length of time since credit was first established in your name, and may reject your application for a large loan amount until you have gained more credit experience. This situation is called “insufficient credit” and this condition may exist simultaneously with a good credit score. In other words, you can have a high credit score, but still have an insufficient credit history for the purposes of a particular credit application. (continued below the table)
Range of FICO Scores (Table)
|Fico Score||Rating||% Pop||What to Expect|
|300-575||Poor||18%||In this range, a credit applicant may experience difficulty obtaining credit approval. Very high interest rates may be imposed and collateral may be required.|
|576-675||Fair||20%||Better chances for approval, but rates may be high.|
|676-730||Good||23%||In the 50th percentile, applicants of this range are likely to get approved for a mortgage or unsecured credit at competitive rates.|
|731-799||Very Good||20%||Very good approval odds.|
|800-850||Excellent||19%||Lenders may be offering you credit before you even ask!|
% Pop = Percent of population
Sources: Experian.com and Equifax.com
Granted, the outcome of a loan application submitted by someone who lacks a sufficient credit history can be the same as that for a bad credit line. However, the processes to remedy the two are entirely different. The person with a poor credit history has their work cut out for them; they must change their spending and repayment habits, bring down their debt ratio, and improve their overall handling of accounts. It can take a very long time for changes in spending and account management to have a positive impact on a credit score. On the other hand, the young person who is simply lacking a credit history can take steps to create a positive credit profile, such as obtaining a small loan, or a low-limit unsecured or secured credit card.
A lender will often work with those who are just starting out to help them obtain a reasonable line of credit within their budget, enabling them to establish a credit file. If you find yourself in this camp, take care of your accounts from the beginning; you don’t want to go from “no credit” to “bad credit” because you made some careless errors from day one with the handling of your new credit card or loan account. Above all, keep your spending under control. The ideal credit utilization ratio (the ratio of your used credit to the total available) should be 30% or less. If you find yourself maxing out your cards and making late payments, your credit score will suffer and you will not be able to purchase the larger items that really matter.
Your Credit Rights
The Credit Financial Protection Bureau (CFPB) has established consumer protection guidelines that affect your rights to credit report access, disputes, and overall account accuracy.
Access: You now have free access to your credit scores through your credit card company. The scores from each credit bureau will be printed on your monthly statement. These will also be available in your personal account on the company’s website. Additionally, if you dispute any information on your credit report, you are entitled to a second free copy from each agency. This will help ensure that the changes, if any, have been made on your report.
Disputes: For credit disputes, each credit bureau must have trained staff available to examine all documentation provided by both the consumer and the lender. Their job will be to make a reasoned judgment that considers both sides of the story instead of accepting only the lender’s version of events (a frustrating aspect of the dispute process in the past).
Medical Debt: Each agency must wait 180 days before adding medical debt to your credit report. Furthermore, they must remove all medical debt from your report when the insurance company pays it off.
Beware of Loan Scams
Protect yourself and your finances from fake lenders and low-life scammers. Make sure to read up on scam techniques, such as their use of legitimate company names and logos, stolen from real loan companies, in order to hide their illegal operation. Educate yourself about foreclosure fraud, advance fee loan scams, and identity theft, so you’ll be better able to recognize red flags when you see them. You will be able to fend off the bad guys who take advantage of the desperate and vulnerable.