Most of us have had trouble with our finances at one time or another. Modern life requires us to have items like cars to get to work and cell phones to communicate quickly. These modern conveniences can be costly, causing problems for someone struggling to make ends meet.
If you have been struggling financially, you may have a few more debts than you can manage, negatively affecting your credit score.
If you need a loan but have a low credit score, what can you do? Are there loans for people with low credit scores, and can you get your good credit back? Here are some basics of how your score works, how loans work, and some loans for which you might be able to qualify.
Your Credit Score
Experian, Equifax, and TransUnion are the three main agencies that monitor consumer credit. These credit bureaus collect information about consumer loans and credit cards, rate individual consumers, and assign scores based on their credit-worthiness. Each bureau uses its own criteria in combination with standards set by the Fair Isaac Corporation (FICO) to determine your credit score.
Each bureau scores differently, but they all use the same scoring system. For example, here are Experian’s ratings:
|Very Poor||300 – 579|
|Fair||580 – 669|
|Good||670 – 739|
|Very Good||740 – 799|
|Exceptional||800 – 850|
The scoring system tells lenders whether you have been able to meet your financial obligations in the past. They use that knowledge to judge whether giving you a loan would be a risk.
Lenders do everything they can to help approve a loan request, but there is only so much they can do if your credit isn’t high enough. A FICO score of 500 means you may have had some difficulty in the past with your finances. This doesn’t mean you won’t be able to get a loan, but you may not get a very favorable loan rate, term, or amount.
Terms, Rates, Limits, and Conditions for Low-Credit Loans
Loans are all payable in equal payments, following the lending credit union’s specified frequency of payments. When you take out a loan, you agree to pay back the loan amount and all the interest accumulated within a specific period called the loan term or the life of the loan.
The interest rate is the percentage of the principal you pay above the loan’s actual remaining amount. If the loan has an interest rate of 5%, you might see an annual percentage rate (APR) of 5.56% listed on your agreement. The APR is different from the interest rate because the loan fees are added to the principal amount, meaning you need to pay interest on both the fees and the loan itself.
Many bad credit loans will have maximum loan amounts on them. For example, you might only receive a loan offer for $500 if you have bad credit. Other lenders might require you to attend credit counseling before receiving the funds.
Most lenders want to ensure you have a minimum amount of income. If your debt to income ratio is unequal, meaning you have too much existing debt when compared to your income, they may require some safeguards, like a cosigner, before they approve you for a loan.
Poor Credit Loans
There are many types of personal loans available for those with poor credit. Your credit union will usually work with you if you need a personal loan, even if you have bad credit. They might ask you to secure your loan with some collateral. You can use a car, a family heirloom, or something else as collateral, as long as it’s of equal value to the loan.
If you have bad credit, a lender might be willing to lend you money if you use a cosigner. A cosigner signs the loan and takes on responsibility for the loan if you can’t make the payments or pay it off.
Low credit score borrowers may want to consider applying for a credit card through T&I Credit Union. In addition to improving your credit score every time you pay on time, you’ll earn one reward point for each dollar you spend. As long as you pay your credit card bill on time, you won’t need to pay any interest. You can think of a credit card as a short-term loan.
T&I Credit Union also offers debt consolidation loans. Instead of dealing with multiple payments each month with different interest rates, T&I will merge all your existing debts into one loan. You can choose a term length from between 24 and 48 months. Consolidation loans may help reduce your interest rates, meaning you’ll pay less in the long run. They also make it easier to handle your monthly payments and can help you rebuild your credit.
Just because you have a low credit score, it doesn’t mean you are ineligible for a loan. In addition, there are several techniques to raise your credit score.
How to Raise Your Low Credit Score
Try to reduce the number of credit inquiries you initiate. Your credit report is checked every time you apply for a loan, credit card, or exceed your number of free credit history checks with one of the credit bureaus. Every time your credit is checked, your score goes down. If you check it too often, you’re lowering your score on your own.
You can also talk to your credit union to determine if they have any products and services that can help you restore your good credit while assisting with your immediate need for a loan. They can help you identify unnecessary expenses and help you develop a financial plan to get you back on track to stability.
However, you should know that increasing your score will take time. You may not receive a large loan at first, but if you continue to make timely payments, your score will eventually rise, and you’ll be able to obtain loans with better terms and rates.
Talk to Your Credit Union
T&I Credit Union has been helping people with their credit for years. We understand that planning for your future can be challenging with a bad credit score, which is why our experts want to help you get your credit back. If you’d like to learn more about our credit help and loans, contact us at (238) 397-3945. We’d love to help you restore your financial dreams.