Personal Loans & Bad Credit
A good credit score will help open the doors to various financial avenues that would otherwise be closed to you. This is why it's good to be aware of your score and strive to keep it as high as you can. However don't think that a personal loan is beyond your reach just because you have a less than perfect credit score.
The influence of your credit score:
Credit score still plays a key role when it comes to personal loans, especially when you are applying for unsecured loans, although many new lenders try and look past the credit score by analyzing in more detail your financial situation. Here are a few things your credit score can have an effect on:
You credit score has a direct impact on your chance of being approved for a loan.
The interest rate can be lower if you have a good credit score.
A better repayment plan based on your financial capabilities.
With lower rates and a long period to repay, your monthly installments will be lower.
Borrowers with bad credit have a really hard time applying for personal loans but there are way of improving a credit score.
How to build and maintain your credit score:
If you are looking for a personal loan but have a less than perfect credit score there are steps that you can take in order to improve your score. Keep in mind that there is no quick fix. It will take time but it's for a good reason.
There are three questions you need to answer before building your credit score.
Do you make your payments on time? - missed and late payments have a negative impact on your score and are generally reported if you are late for more than 30 days.
Are you often in debt? - A common misconception is that you need to take out loans in order to have a score. A low amount of debt is better.
How long have you had credit? - A longer credit record with a lot of monthly activity is better for a good credit score.
There are also other steps you can take to improve your credit score. For instance you can:
1. Dispute errors - Contact Equifax, Experian or TransUnion if you think your score was lowered without a good reason;
2. Know your credit limits - Check your credit limits with the card issuer. You don't want to be maxing out every month;
3. Get a credit card - Get a secured card and use it to pay your bills. Choose a card that reports to all 3 credit bureaus;
4. Under-use your cards - Don't use your cards for everything. Try to stick to no more than 30% of your credit;
5. Increase your credit limit - But don't increase spending. This will lower your credit utilization ration and help increase your score.
To steadily grow your credit you should make sure to pay all your bills on time as well as your credit card balance. Never miss your payments and you should be in order. Taking out a loan and making payments on time and having them reported to credit agencies like Equifax, Experian or TransUnion can also improve your score.
Even if you find yourself having "bad credit" and in need of a personal loan there are still options for people with a less than perfect credit record. Keep in mind that rates tend to be higher, and if the installments are not payed on time they can lead to an even worse credit score.
Credit scores in different states:
There are differences between lenders from various states, however all lenders that provide unsecured personal loans will do some sort of check on your credit record. Also regulations in California may differ from those in Texas when it comes to checking credit scores. In most states for example it is illegal for employers to request an employee's credit score unless it's for a very limited number of circumstances.
In California anyone can check their credit score for free at least once per year with any of the three nationwide credit reporting agencies. The best way to do it is to check with one of the agencies, wait four months, check with another, wait four months and then check with the last one. This way you can check your score for free the whole year. It may be the same in your state and you should check that.
So if you have a less than perfect credit record don't worry, there are ways to fix it and gain access to personal loans or other types of online financing.