Most people will experience some type of financial hardship at some point in their lives. If you are struggling financially, taking out a loan might help you make ends meet. But is obtaining a loan still an option if your credit score is low?
Here’s what you need to know:
What’s A “Bad” Credit Score?
There are several different credit score models, but in general, credit scores fall somewhere between 300 to 850. The higher the score, the better. But how low is too low? Most lenders would define a “bad” credit score as one that falls below 600.
Find out where your credit score stands by checking your credit report. Experian, Equifax, and TransUnion, the three major credit reporting agencies, must provide you with one free copy of your credit report per year.
If you haven’t already requested a copy for this year, contact one of these agencies to obtain your report. You can also download the Credit Karma app to view your credit history from your mobile device.
Will I Get Approved For A Loan With Bad Credit?
Each lender has its own rules regarding issuing loans to borrowers with bad credit. In fact, each lender has a different credit cutoff score.
For example, some lenders may choose to only issue loans to borrowers with a credit score above 650, whereas others may issue loans to borrowers with credit scores as low as 580. Because each lender has its own requirements, it’s best to contact different lenders to find out whether or not you qualify.
Even if you are approved for a loan, a bad credit score will cost you. Borrowers with low credit scores are seen as risky borrowers, so lenders typically charge them higher interest rates.
If your credit score is too low to qualify for a standard loan, there are other options available. Borrowers with low credit scores can qualify for secured loans, which are loans that are supported by collateral. Lenders that issue secured loans such as savings-secured loans or car title loans will work with all borrowers—regardless of their credit score—as long as they have personal property they can use as collateral.
How Can I Quickly Improve My Credit?
Improving your credit is the best way to improve your loan approval odds. You can increase your credit score quickly by following these tips:
- Don’t open any new lines of credit.
- Make on-time payments every month.
- Avoid using your credit cards so you can keep your balances as low as possible.
- Become an authorized user on someone else’s account (as long as their account is in good standing).
- Review your credit report to look for errors that you can dispute.
- Keep all of your credit cards open—even if you aren’t using them right now.
- Pay more than the minimum amount.
As you can see, a bad credit score does not automatically make you ineligible for a loan. If you are unable to make ends meet, reach out to lenders in your area to initiate the process of applying for a loan.