It seems like people are more concerned about their bad credit record than before. At least, it’s true for Millennials. In one report, it is revealed that 9 out of 10 Millennials know their credit scores. That is an indication that they are keeping tabs on their credit reports. And you wouldn’t keep tabs on anything if you will just let it go bad. Most of the time, when you monitor something, it’s with the intention of improving it.
And that habit is a good one to have. Considering everything that’s happening around us, you need to start developing good financial habits if you want to survive the crisis. For instance, having a good credit score will allow you to borrow some money to help improve your financial situation. The good credit record will increase the chances that you will be approved of a low-interest loan. That means it will not be too costly to pay back.
You can use that loan to pay off your high-interest debts. Or you can use the money to start a home-based business so you can earn some extra cash.
But what if you already have a bad credit record? Can you still qualify to get a loan?
How to get a loan with a bad credit record
Yes, you can! It’s possible to get loan approval even if your credit score is not ideal. You just have to know what to do to get approved. The process you need to follow is the same. But you have to make sure that you do every step correctly. You don’t want to leave out room for the creditor or lender to think that you cannot be trusted with the loan. Because if they think you are a high-risk borrower and that there is a chance you will not pay them back, the loan will cost you. They will not just give you the highest interest rate possible. They will also add fees and charges that will make the loan payments more expensive.
So what are the 4 steps you need to follow?
Step 1: Look at your credit report
Start by looking at your current credit report. Calculate the credit score based on the report you got from the major credit bureaus. The purpose of this is to see how bad your credit record has become. When you know the problem, it’ll be easier for you to find a solution that will help you get the best terms on the load regardless of your bad credit record. Not only that, but it will also help you narrow down your options when it comes to the loan you can qualify for.
While you are collecting your credit reports, you should also gather the other documents that will be needed when you apply for a loan. Get a copy of your bank statements, payroll stub, and other documents that will help prove you can pay back the loan. It’s true that the credit score is an important part of the application process. But there are other factors that will still be considered by the lender.
Step 2: Figure out the type of loan you can borrow
The next step is to find out the loans that you can qualify for. If your credit score is really bad, your options will be more restricted. For instance, if your credit score is really bad, you might need to offer collateral to get the best terms for your loan. As mentioned, having a bad credit record will make you a high-risk borrower. To protect themselves, the lenders will give you a higher interest rate. But if you can lower the risk, you can get a lower interest rate. To do that, you have to offer them something that will give them additional security.
One way to do that is to apply for secured loans. These are loans that involve collateral. It is the security that the lender will hold on to. In case you cannot pay off your loans, they will use that collateral to replace the payment. It will make the loan less of a risk. That means they don’t have to increase your interest rate.
There are other loan types that will give you better terms – you just have to know them all to pick the right one.
Step 3: Research the best lending options
If you know the type of loan that you want to borrow, the next step is to find the lender that you will borrow from. There are a lot of options out there. But you have to do your research properly. Get to know the lenders, their financial products, and the terms that they offer. Compare them with one another. Read about their customer support too. If you will be borrowing a loan from them and paying them over a long time, you will be talking to customer support for a long time. This is why you need to be sure that they are easy to work with.
And you need to look at the news as well to figure out any changes the lenders might implement. For instance, the current pandemic is leading lenders to tighten their lending standards. So if you know that information, you will know how to approach the lenders. Or you can time your application right so you get to save more money.
Step 4: Complete the requirements and apply
After finding the lender that can provide you with the best loan terms, it’s time to apply. If you did step 1 correctly, you should have the documents that you need to complete the application. You just need to accomplish the application form and then submit all the requirements. Make sure that you get all the details right. Any errors will result in your application being disapproved. Also, don’t provide incorrect details about yourself. Even if you have a bad credit record, don’t try to hide it. The lender will get their own copy of your credit report. You just have to convince them that you are responsible enough to pay them back. There are ways to do that – like your income statement and bank statements.
What happens if you don’t get approved? Ask the creditor or lender why they did not approve the loan. They are bound by the law to tell you why. Once you get the answer, wait for a while and try again. Reapply and make sure you have dealt with the reason why you were initially disapproved.
In case you do get approved of the loan, congratulations! You can now work on improving your financial situation through these funds.
Tips to use the loan to improve a bad credit record
As you try to get your loan approved, make sure you keep the future in mind. If you get approved for the loan, it can also be used to improve your bad credit record. In case you borrowed that money to improve your financial position, make sure you also improve your credit score.
There are two ways you can do this.
Borrow only what you need
First of all, you have to strictly borrow only what you need. If you only need to borrow $10,000 to pay off high-interest debts but you are qualified to borrow $15,000, stick to the first amount. Don’t borrow $15,000 just because you can get approval for it. You will just waste your money paying off the interest on that amount. You don’t need it so don’t borrow it. The less you borrow, the easier it is to pay it back. This will help keep your credit utilization rate down and pull your score up.
Meet your payment terms
You should also make sure that you can meet every single payment on that loan. In fact, before you borrow, you should have a repayment plan in place already. If you are unsure about how you will pay it back, don’t borrow the money. You will just make things worse for your finances.
As you meet every payment, you will improve your credit score. It will not happen overnight. But every time you meet your payments, it will improve. Soon, you no longer have to worry about your bad credit record.