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Don’t let a low credit score stop you from getting a loan. If your score is below 670 it’s considered “low,” making it difficult, but not impossible, to secure a loan. Here are five steps you can take to improve your chances of getting approved.
1. Know your credit score
Lenders typically have a minimum credit score requirement, and if your score falls below it, your application can be denied. Many financial companies, including ChoiceCreditScore, provide access to your credit score and AnnualCreditReports.com offers a free detailed credit report. Take a look at your report and fix any errors, since can boost your credit score.
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2. Find lenders specializing in bad credit loans
Not all lenders have the same requirements when it comes to personal loans. Research and identify lenders who specialize in working with borrowers with less than stellar credit:
– Online lenders
– Credit unions
– Peer-to-Peer lenders
– Family and friends
These tend to consider alternative criteria like employment stability, income, education, and banking history, as well as your credit score.
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3. Prequalify for loans and compare
No two lenders will offer the same rates so it pays to compare options. Before you apply for a loan, check if you prequalify. This will let you see the loan amount, rates, and repayment terms without hurting your credit score. When you do apply, the lender will do a hard credit check which temporarily lowers your credit score. Prequalifying lets you see if you can get approved and compare loan rates and terms without hurting your credit. If you don’t prequalify, then it’s definitely time to build your credit!
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4. Consider collateral or a co-signer
Look into co-signed, joint, and secured loans. Lenders are more likely to approve co-signed or secured loans with better rates because they lessen the risk to the lender. If you don’t pay, your co-signer will have to pay the loan or the lender can seize your collatoral. Lenders will review the co-signer’s financial details and/or the collateral value (home, vehicle, assets) for approval and rates. If you don’t have either a co-signer or collatoral, then maybe a cash advance is a better option for you.
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5. Apply for small loans
Ask only for what you need and can afford to repay. If the lender thinks the amount you asked for will overextend your finances they are more likely to decline you.
Instead, ask for a smaller amount and be sure to add all your income. This includes nonemployment income like alimony, child support, retirement, or Social Security payments. Responsibly managing a small loan can build trust with lenders and lead to larger loan approvals in the future. If you need help managing your finances there are plenty of money apps out there to give you the advice you need.
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Final Thoughts
Getting approved for a personal loan with bad credit can be tough but it’s certainly doable. With some work on your credit, the right lenders, and a little help from your friends you should be able to get approved.
If you want to learn more about how you can build your credit and increase your chances of getting approved, check out 10 Ways to Build and Improve Your Credit Fast.
