If you have been turned down by one lender, don’t lose all hope and assume that you’re completely ineligible. Poor credit makes it hard to get a loan, but it’s not entirely impossible. According to a 2014 Federal Reserve study, 40% of people didn’t even apply for a loan because they incorrectly believed that they weren’t eligible to get one due to their poor credit history.
Of course, even people with bad credit can find creditors willing to lend them money — but they must be prepared to pay an extremely high price for the “opportunity.” Before you consider going this route, here are some facts that you need to know:
What is Bad Credit?
In the US, credit scores typically range from 300 to 850, where a number below 620 is considered to be bad credit; a score above 690 is good and 720 or higher is excellent. Then again, credit score ranges are different depending on where you live in the world. For example, New Zealand’s credit score provider, Centrix, uses a scale from 0 to 1000, where scores below 450 are considered bad credit; scores above 600 there can be considered as good scores and scores in-between as regarded as normal.
People with bad credit scores usually find it very hard to get a loan as most lenders don’t trust them. Bad credit can be a result of many things. Missed payments, maxing out your credit cards, having derogatory marks on your credit reports such a bankruptcy can affect your credit score very poorly.
Can You Get a Loan With Bad Credit?
Getting a loan with bad credit is not entirely impossible. Most lenders have their own cutoff scores, and if your score falls below this level, you’re less likely to be approved for a loan. On the other hand, there are some lenders that don’t pay much attention to poor credit scores. For example, lenders like advanced cash take your employment situation and history of credit to help you with your financial situation. However, these lenders also charge extremely-high interest rates — often upwards of 400% or more! As such, they should only be used as an absolute last resort.
How To Improve Your Credit Health
If you have poor credit — or even if you have filed for bankruptcy — you can still improve your credit score in as short as five years. Your credit score is calculated using different factors and models. In order to improve your credit score, you need to focus on these critical factors that make the most impact.
- Payment History: You can’t change the past, but you can change the future. So don’t get too hung up on the fact that you have a poor payment history. Instead, make all of your current payments on time for at least the minimum amount.
- Credit Usage: Maxed out credit lines are very harmful. It’s important to keep your debt at least 30% below your total credit limit.
- Credit History: Having old accounts with good credit history instead of closing them can help increase your credit history length.
- Be Responsible: Opening several new credit accounts in a short period of time can create a very negative image in the eyes of a lender. As such, only open new credit accounts when you know that you can keep up with the payments.
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