If you struggle with bad credit reports such as high debt, bankruptcies, missed payment, and the likes, lenders will keep away because you are a potential credit risk.
Tips for Loan Approval With a Bad Credit
Most lenders do not consider credit report rather they focus on the credit score derived from the report. Lenders consider the FICO and the Vantage Score most. Each of these scores ranges from 300-800. If you fail to meet up with the numbers, your application might be rejected.
However, even with low credit, you can still borrow right. Below are some tips to guide you.
Know Your Credit Status:
Most people think their credit rate is extremely low but is not always true. When they check, they discover that it is not as low as they think. To know your true credit status, obtain your credit report from Trans Union, Equifax or Experian. It is without charge and can be obtained from Annual CreditReport.com once yearly. You can obtain a copy of each of the three credit reports.
Read your credit report carefully, you won’t be disapproved because of a late payment or an old bankruptcy once you have managed your credit properly since that time.
Your credit score finds no place in your credit report and is not included. However, there are options on how you can option a free credit score and see the data translate numerically. If you fall above 640, you are still within average and can borrow more often.
A Cosigner Can Help:
A friend with a wonderful credit can cosign. That generous person agrees to pay the loan if you eventually default. This way, the loan will be guaranteed even by the toughest lender.
Cosigning can, however, go with risk. If the borrower defaults, both of you will have a damaged credit rating. The missed payment will show on both credit reports. This will lead to both damaged credit rating and friendship. Before you cosign for someone, make sure he has the ability to repay as scheduled.
Upgrade Your Credit File:
Give your score attractive look by adding positive information to your credit report. Having a limited credit file can be considered a bad credit because the future can be imagined in the past. From the information you provide as a borrower on your report, a lender can perceive what the future will look like. Without it, he has nothing to convince him and you are down the line to rejection.
You can include your bills and utility account to your report with Experian’s free Boost program if you have properly managed them. You can also add your constant rent payment to your record. The Rental Kharma and Rent Reporters can help you do that though you will be charged. Your payment will be calculated and recorded to your credit score positively.
This will impress lenders and they will consider you financially reasonable. Experian Boost, The Rental Kharma and Rent Reporters enable you to boost your payment history by allowing you include positive history to your report.
Avoid Big Commercial Banks:
Big commercial banks have high approval standard. Meeting up with their standard will be challenging and tough especially with a poor credit report. Consider Credit union which can be more accommodating and forgiving.
Credit union help members build their financial history. They are owned by the poor who opened an account with them. Once a member, identify a favorable loan with the help of an employee. The credit union does not please stockholders. They offer guidance on how to increase your rating and qualify.
Stay Away From High-Interest Loan:
Even with an extremely low or nonexistent credit history, you can still have your way to borrow money. However, they come with very high interest that is usually challenging to pay unless you pay overnight.
The Annual Percentage Rate for 14 days $100 loan with a $15 fee is almost 400%. Says the Consumer Finance Protection Bureau (CFPB). You can get a car loan at 25% per month equivalent to 300% Annual Percentage Rate. If you default on payment, the Federal Trade Commission gives the lenders the power to repossess the car.
If this is the only option you are left with, it is an indication that you are not qualified and should stop borrowing.
Allow Some Time, If You Can:
If you have some negative information that’s hindering you from getting qualified, you can wait for some time to qualify. Is your problem delinquencies, judgment, default or collection account? Wait, they can be recorded for seven years only. However, some stay for eleven years such as chapter seven and eleven bankruptcies.
If any of the above challenges are holding your application but is almost over, put your application on hold. When the years are finally over your scores will increase and your report will upgrade. This time you are free to apply for the loan of your dream.
Pay Off Collection Accounts:
If you’re rated low because of collection debt, take immediate and positive action by paying off the debt. Most recent versions of FICO and VantageScores do not consider satisfied collection account.
Paying off your collection account minimizes your chance of getting rejected by lenders. To understand how paying off your collection account can impact your credit score, make use of a credit stimulator the TransUnion stimulator.