It’s not impossible to get approved for a loan with bad credit , but it may be more difficult than getting approved with good credit. Follow these tips to improve your chances of getting approved for a loan with bad credit.
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Check your credit report for errors
It’s a good idea to check your credit report for errors before you start the loan approval process. This way, you can correct any inaccuracies that might be working against you. You can get a free copy of your credit report from each of the major credit reporting agencies — Equifax, Experian and TransUnion — once every 12 months at AnnualCreditReport.com.
Pay off your debts and keep balances low on your credit cards
Compensating factors help when you have a low credit score.
Lenders like to see that you’ve made progress in repairing your credit history. So, even if you still have bad credit, applying for new credit accounts and keeping your balances low relative to your credit limits can help increase your score over time.
Of course, the key is to make all your payments on time, keep balances below 30% of your credit limits (with 20% being optimal), and mix different types of accounts, such as installment loans and revolving lines of credit.
Get a co-signer
One of the best ways to get approved for a loan with bad credit is to find a cosigner. A cosigner is an individual with good credit who agrees to vouch for you financially. This means that they will be held liable for the loan should you default on it. Banks and other lenders are more likely to approve loans with bad credit if there is a cosigner involved because it reduces their risk.
Get a secured credit card
A secured credit card is a good option for people with bad credit because it requires a security deposit, which acts as collateral for the credit limit. For example, you may be required to deposit $200 to get a $200 credit limit. This deposit is held by the issuer as protection against nonpayment. Because the deposit reduces the issuer’s risk, people with bad credit may be able to get a secured card with a relatively low APR. Just be sure to make all your payments on time — otherwise, you could lose your security deposit.
Try a credit union
Bad credit can prevent you from getting approved for traditional loans from banks or other lenders. But there is hope—you may be able to get approved for a loan through a credit union.
Credit unions are nonprofit organizations that are owned by their members. Because they don’t have to answer to shareholders, they can offer loans with more favorable terms to people with bad credit. They also tend to be more flexible when it comes to things like employment history and income requirements.
To qualify for a loan from a credit union, you’ll first need to become a member. This usually requires that you meet certain eligibility requirements, such as living in a certain area or working in a certain industry. Once you’re a member, you can apply for a loan just like you would at any other financial institution.
If you have bad credit, trying to get approved for a loan can be frustrating. But don’t give up—you may still be able to get the money you need from a credit union.
Consider a non-profit credit counseling agency
Consider a non-profit credit counseling agency to help you repair your credit and get back on track financially. These agencies offer free or low-cost services, and they can help you create a budget, set up a repayment plan for your debts, and work with your creditors to improve your credit score. You can find a list of non-profit credit counseling agencies at the website for the National Foundation for Credit Counseling.