Are you feeling discouraged to get a loan because of your poor credit scores? Is your bad credit holding you back from getting a personal loan at the best rate? Or, are you badly searching for bad credit loans guaranteed approval knowing the fact that you may not qualify for traditional loans? Then, you don’t need to feel left out. According to FICO® Score 8, almost 16% of the Americans belong to 300-579 score range which is considered very poor. Needless to mention that a lot of lenders decline credit applications from the people belonging to this range.
But, not to worry! There do have many ways to secure a loan with a bad credit score, even though those are challenging. Before you start searching some bad credit loan lenders, let’s focus on some important ways to boost your chances of getting loan approval, if you have bad credit.
How Do You Get a Loan with Bad Credit Score?
When it comes to getting loan approval from traditional banks, you will be hard-pressed to find a lender if your credit is not in a tip-top shape. Most of the traditional banks have stringent borrowing criteria.
Check your most recent credit score
As per FICO’s industry-standard, five categories of credit score are:
• Poor: below 580
• Fair: 580-669
• Good: 670-739
• Very good: 740-799
• Excellent: 800-850
Before applying for any loan, one should always have a clear vision of his or her credit status. Several finance-based websites and companies such as Credit Karma offer free credit score estimate service. Maintaining an excellent credit score to get a loan is not always possible, but the more your score shifts from ‘very good’ to ‘poor’, the more changes you can see in the rates and offers provided by lenders (if you are fortunate enough to get some lenders at all).
Understand how credit scores impact interest rates
Your credit score has the most significant role to play in deciding what rate of interest you will get from a lender. When most of the standard lending institutions won’t offer personal loans without fair credits, some will be agreeing to allow the loans below the credit score 580, but only with a higher interest rate. Even your credit score is below fair, you should never assume that your loan application will be turned down by lenders. So, it is important to ask interest rates from multiple lenders so that you will get the chance to know who will offer the most feasible rates and terms for you.
Calculate your debt-to-income ratio
The debt-to-income ratio of a person is another key factor for the lenders to decide to issue him the loan. The DTI ratio can be calculated by dividing your all monthly debt payments by gross monthly payment. With this ratio or percentage, the lenders try to understand your ability to repay the money monthly which you are planning to borrow. The 43% debt-to-income ratio is important, as in most cases, lenders consider this as the highest ratio of a borrower to get a qualified mortgage.
Consider online lenders
With a bad credit score as low as 550, when you have a high chance to get rejected by most traditional financial institutions, online lenders can be your true saviours. Since banks have to follow a lot of regulations, they have their strictest lending process. On the contrary, online lenders have the flexibility to offer bad credit loans guaranteed approval. They may be more concerned about your ability to pay back the loan rather than your credit. You can find a good number of online lenders including Marcus by Goldman Sachs, SoFi, Payoff and Lending Club. It is always advisable to compare offers from multiple online lenders to find the most reliable one.
Arrange a cosigner
Sometimes, bringing in a cosigner can strengthen your loan application to get approved. Lenders are more likely to rely on cosigners who can add extra strength to loan applications, especially in the scenarios where the primary borrowers seem unable to make the payments. Here, the cosigner will be liable for the loan payment until the primary borrower regains the strength to make the payments.
NOTE: Avoid bad credit loan scams
When you are in financial crisis and looking for fast money, chances are you may be vulnerable to scams, especially when you are not qualified for standard loans due to your bad credit history. Beware of any bad credit loan scams where you may be required to pay upfront fees or unusual types of payments. Remember that you do find some legitimate lenders for bad credit loans guaranteed approval; just make sure to go through all the terms and conditions closely to avoid scammers.