Getting a loan with bad credit can be challenging, but possible. Though bad credit can limit your options and bring costly loan offers, it is still a viable option for many. Reputable private lenders have very low minimum score requirements, and apart from credit score, they also provide other requirements like collateral, income, credit history, and more.
Some lenders consider any score below 670 a bad credit score since it falls in the fair/poor scoring ranges. With bad credit, it means you do not have options, but you can still get approved for the loan. But how? Follow this write-up till the end to learn how you can get a loan with bad credit.
What’s a Bad Credit?
Bad credit simply means low credit scores. Late payments can greatly lower your credit score. However, a few things, like timely payments and low credit utilization, will significantly improve your score. The credit scoring models use different formulas to determine the credit scores, usually in a range of 300-850, and can identify the specific ranges as ‘bad credit’. For instance, FICO considers credit scores between 300-579 as ‘poor’. Different lenders can define bad credit scores differently.
It is advisable to improve your credit if you want to get more loan options with good terms. A low score shouldn’t hinder you from getting an instant personal loan to cater for an emergency or consolidating debts. However, if you have a bad score of 629 and below, you may need to work on improving it to qualify.
Below are steps to get a loan with bad credit:
Step 1: Check your Score and Credit Reports
First things first. Before you consider doing other things, the very first step to consider when applying for an urgent loan with bad credit is your credit score and credit report. How is your credit report? Most users ignore this, which is a very important factor. As for credit reports, you can get them from the major credit reporting bureaus: Equifax, TransUnion, and Experian.
When you get your credit report, you will know what your score is and easily identify the negative marks on the record. If by chance you find errors or an older debt dragging your credit score, ensure you correct it first before applying for the loan.
Step 2: Compare Different Lenders
If you find lenders having the same borrowing requirements, interest rates, and more, you must compare them. Whether it is an online lender or a credit union, comparing them will help you find the best place to apply for a loan.
You can consider things like loan requirements, loan details, and other features. The requirements of the loan can be credit score, DTI ratio, etc. You need to know if you would qualify for the loan. The loan details entail loan amounts, terms of repayments, etc.
Online lenders are a great option if you need a loan for a low CIBIL score. As compared to traditional banks, some online lenders use other criteria to gauge your approval. However, the requirements may differ since others may look at your income and job.
The requirements will differ by lender, but most consider factors like your job, income, and education history. When you have these requirements, prequalify with several lenders to see the odds of getting eligible without affecting your credit score. Also, you will get to see the interest rates.
Step 3: Check all your financial documents
When applying for any loan, you will be requested various financial documents by the lender to finish the application. Therefore, you need to ensure all the relevant documents are prepared beforehand. Some of the documents required include:
- Proof of Identity like PAN card and Aadhaar card.
- Proof of Address like Aadhaar, Credit card, Utility Bill etc.
- Proof of Income such as Bank Statement, Work email, etc.
In addition, your lender may need additional documents, which should be provided instantly to help your loan to get approved quickly.
Step 4: Prepare for a Hard Credit Check inquiry
After applying for the loan, the lender will obviously perform a hard credit check. This may lower your credit score by some points, which is why multiple hard pulls for a short period aren’t recommended.
Failure to make payments on time is one thing that may lower your credit score when a hard inquiry is made. Too many hard inquiries in a shorter time may lead to long term damage to your report. Lenders may see you as a risk borrower who cannot afford to repay the borrowed amount. If you must undergo hard inquiries, ensure you do that after a specific period to lower the credit damage.
That’s it! Now you know how you can get a loan if you have bad credit. However, before you apply for personal loan, know exactly where you stand in terms of credit score and credit report. After that, compare the lenders you think are the best to find one lender you can work with. Make sure you choose a lender offering minimum application requirements and documents. This will save you the troubles down the line.