Personal loans have all kinds of uses. Whether you’re consolidating debt, paying an unexpected expense, or just funding a major purchase, personal loans can help. But lenders are less giving to those who don’t have wonderful credit. Here are some tips for getting a personal loan with bad credit.
How Does Your Credit Affect Your Ability to Borrow?
Your credit score is one of those things that seems incredibly unimportant, right up until the exact moment when it becomes critical. Most of the time, your life isn’t going to be that affected by having poor credit. There are, however, a few major exceptions to this—the most obvious being your ability to borrow money.
At its essence, your credit score is a rating that tells lenders how likely you are to pay them back based on quantifiable information. These are the main factors that go into determining your credit score:
- 35 percent for payment history – This is simply the ongoing record of how reliable you’ve been with paying your bills back on time.
- 30 percent for available credit versus usage – Often referred to as a credit utilization ratio, the amount of debt you have versus your credit limit is one of the biggest pieces of determining your credit score. Having a lot of debt isn’t necessarily bad for your score if you have a high limit. On the flipside, having only a few hundred dollars of debt can severely damage your score if you’re using most of your available credit. Usually, lenders want to see credit utilization under 30 percent.
- 15 percent for length of credit history – Simply having a longer credit history can be good for your credit. By looking at your oldest accounts and how many new accounts you’ve recently opened, lenders can get some idea of your creditworthiness.
- 10 percent for credit mix – The types of credit you currently have can affect your score to some degree. If you only have store credit cards, that’s not going to look at good as someone with a few different lines of credit, a car loan, and a mortgage.
- 10 percent for new accounts – There’s some evidence to show opening a lot of new lines of credit in a short period of time can be indicative of credit risk. Lenders want to formulate this into their approach.
As you can see, there are many things that go into your credit score. Being able to improve any of these—especially the larger categories, can really help boost your score. And that’s something you’ll want to consider if you have poor credit and are looking at personal loans. Lower credit means it will be more difficult to get a loan; and if you can get one, it will come with a higher interest rate. That doesn’t mean it’s impossible, you just have to know where to look for a poor-credit personal loan.
Where Can You Find a Personal Loan with Bad Credit?
For those with bad credit who really want or need a personal loan, there are still some options out there for you. There are lots of lenders out there, many of which will deal with consumers who don’t have great, or even fair, credit. Shopping around to see the offerings from a variety of lenders can help you find one that will work for you.
It’s also possible to utilize sites such as Bill.com, which provides information about a wide range of financial products from loans to debt relief. There, you’ll be able to compare offers from different lenders to see what makes sense. Once you’ve narrowed down your search to a few potential options, you can try pre-qualifying for a personal loan. You can do this to learn what the loan would look like for someone with your credit, without having it affect your credit score.
If you find there’s no way for you to get the personal loan, you can also consider having someone cosign with you. It’s important your cosigner understands they’re on the hook to pay if you don’t, which can lead to strained relationships if something goes awry.
There are many reasons you might want to get a personal loan. Don’t let your bad credit stop you from borrowing money when you need it. With the right approach, you can get a personal loan with bad credit.