Borrow and Build: How to Get a Loan with Subpar Credit

You’re faced with a major life change. You’re getting married or buying a house. Maybe you just lost a job.

Whatever your situation, one thing is clear. You need money. If you have poor credit, getting the money you need can be a tricky.

We have good news. It is possible to borrow money with bad credit, and we are going to show you how. What follows is our guide to the getting a loan no matter what your credit score.

Along the way, we will explain how credit works, so that you can also work toward rebuilding yours. Read on to turn over a new leaf in your finances.

What Is Credit Anyway?

You’re told you have bad credit, or you think you might have bad credit. What does that even mean? First of all, here is what it does not mean.

You are not a bad person. You are not financially ruined. You are not barred from owning property or a car.

Credit is a system that was invented to give financial lenders an idea of how reliable you are when it comes to repaying them. Landlords check credit to gauge how likely you are to pay your rent on time, and lending institutions check credit to determine the terms of a loan or if your credit history makes you too much of a risk to lend to.

A Guide to Credit Scores

Credit scores range from 300 to 850. The higher the score, the better your credit, and the greater your financial freedom. Here is a general breakdown of credit scores.

  • 760-850: Excellent
  • 700-759: Very Good
  • 660-699: Fair
  • 620-659: Poor
  • Under 620: Extremely poor

As you can see, there are only 150 points of the scale (151, technically) that count as good credit. There are 400 points that count as bad to fair at best. It is easy to get lost in the lower levels.

What Builds Credit?

Where do these numbers come from? Credit is the result of several factors. Here are a few of them.

Payment History

This is all about how much and when you pay your bills. Doing well in this category is pretty simple. Pay on time and at least the minimum amount, and you are building good credit.

Age of Credit History

A lengthy credit history shows you are reliable over time. One way to maximize your credit history is to leave accounts open even after you have paid them off.

Types of Credit

A credit history full of only credit cards looks worse than one with multiple lines of credit. When you have accounts for paying off a home or car along with student loans and credit cards, you appear to lenders as a well-rounded borrower.

Recent Credit

If you are looking to get a loan, you don’t want to have a bunch of new accounts opened recently. It can make you seem desperate and unreliable.

Use These Factors to Rebuild

These are the ways you build a credit history, and they are reflected in your credit score. On one hand, they reflect when you misuse your credit, which results in lowering your score. On the other hand, taking advantage of your knowledge of these factors can help you build or rebuild your way to good credit.

What Difference Does It Make? The Consequences of Poor Credit

Why does having good credit matter? That is where things get tricky.

For starters, not all lenders have the same definition of good credit. The average American credit score was 704 in April 2018, so that’s a fair standard to measure against. These numbers vary wildly, though, with senior citizens boasting much better scores than new adults ages 18-30.

Once an institution has decided to lend to someone, the specifics of their credit score determine the terms of the loan, including the interest rate. This is both good and bad news for people with bad credit.

You may not be disqualified out of hand, but you are unlikely to get the most favorable terms on your loan.

Types of Loans Available to People Who Borrow Money with Bad Credit

There are many trusted lenders who offer loans to people with bad credit.

Companies like OneMain Financial, Bonsai Finance, and OppLoans offer several types of bad credit loans online. The benefits of these loans include their quick approval process and the ability to improve your long-term credit while getting the money you need in the short term.

There are two major types of loans these lenders offer, secured loans and unsecured loans. It is important to understand the difference.

Secured Loans

Secured loans require some collateral. They become “secured” because this collateral gives the lender something they can repossess if the terms of the loan are not met. For this reason, secured loans usually come with lower interest rates than unsecured loans, but they include a higher risk if you do not pay on time.

Unsecured Loans

Unsecured loans come with higher interest rates, but they do not necessarily require collateral to secure them. The risk with an unsecured loan is that the interest compounds, and you can end up paying quite a bit more than the original amount you borrowed over time.

Payday: Mayday!

There is another type of short-term loan that we advise against except in the direst circumstances. That is the payday loan. These loans come with astronomical interest rates and incredibly short repayment terms.

You should avoid taking out a loan for short-term and unnecessary expenses. Payday lenders capitalize on short-sighted thinking. If you can avoid it, you are ahead of the game.

Borrow Wisely

We hope this guide has taught you it is possible to borrow money with bad credit. There is hope. You can rebuild your credit and still get the money you need for the things that come up in life.

There is plenty more advice where this came from. Continue your financial education by reading our other money tips.

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