Getting a personal loan is a great way to give yourself a financial buffer when you don’t have one. This is why outstanding loans across America are currently worth $138 billion according to the Wall Street Journal.
But taking out a personal loan involves a long application process. This is even harder if you have a poor credit score. But a lot of people in the US do!
In fact, over 50 million American adults don’t have a credit score at all. And less than 1% of people can boast that they have a perfect FICO score. So what are the people with poor credit scores meant to do?
Fortunately, there are options for people with poor credits scores who need to take out a loan. They just need to avoid making personal loan bad credit mistakes when making their applications.
Not familiar with these mistakes? Well, you’re in the right place! Read on to find out everything you need to know about how to get a personal loan with bad credit.
What Is a Bad Credit Score?
A credit score works as a record of your financial activity. It uses your past financial transactions to generate a rating which tells lenders how reliable you are when it comes to money.
For example, someone who consistently pays their bills on time will have a good credit score. This shows banks and other lenders that they are good at maintaining financial stability and paying money back. So they are a lower risk person to lend to.
In contrast, failing to pay your bills on time or remaining in your overdraft for long periods of time will negatively affect your credit score. This type of financial activity suggests that you struggle to keep on top of your finances.
Credit scores are out of 850, although very few people have a perfect score. Your score will fall into one of the following categories:
- Anything between 800 to 850 is an excellent credit score.
- Credit scores between 740 and 799 are very good.
- Scores ranging from 670 to 739 are good.
- A score between 580 and 669 is fair.
- Anything between 300 and 579 is considered a poor credit score.
Anyone with a credit score of 700 or above will find getting a personal loan easy. But this doesn’t mean that it’s impossible to get a loan without a great credit score. You just have to know the best ways to apply.
So let’s take a look at the mistakes when getting a personal loan that people with bad credit often make.
1. They Don’t Choose the Right Type of Loan
One of the top personal loan tips for people with bad credit is to find the right type of loan for you. Not all lenders will accept applications from people with bad credit. But some do, so shop around for deals.
One of the most popular types of loan for people with bad credit is an installment loan. These types of loan offer a more manageable way of paying back your loan over time. You do this in a series of installments.
The idea is that these installments will be less of a financial demand than big lump sums. So lenders are more likely to get their money back even if you have a bad credit score.
But installment loans aren’t the only way to borrow money with a poor credit rating. Check out some reviews of other lenders to find the best one for you.
2. They Ask for Too Much
Wouldn’t it be great if you could apply for exactly the amount of money you want or need and get it? Unfortunately, it’s not that simple. Lenders take your entire financial situation into account when deciding whether or not to loan you money.
You’re more likely to get your personal loan no credit check approved if you keep your expectations realistic. Asking for too much is a common mistake that people make when applying for loans, whether they have bad credit or not.
But people with bad credit are more of a risk to lend to. That’s why banks or lending companies will often be more conservative in their loans to these people. So take this into consideration when applying for your loan.
You need to take into account your current financial situation. This includes any savings you have to pay back the loan with and your predicted income for the future.
But you also need to take into account the interest rate on your guaranteed loan.
When you take out a loan you aren’t just asking to borrow a set amount. You’re also agreeing to pay back interest on top of this. So you need to be able to afford the loan plus interest.
This is the amount that any lender will use when considering your application. If you ask for more than you can realistically pay back then they will reject your application outright.
Take the time to do the math and figure out how much you can afford to borrow. This will also mean you can pay it back over time without financial stress. Paying it back on time will also benefit your credit score, so it’ll help in the long run too!
3. They Don’t Offer Collateral
One of the reasons why getting a loan can be hard with a poor credit score is because lenders are worried you won’t pay their money back. After all, your credit score reflects how you’ve handled your money over time. So the lower it is, the more of a risk you seem to them.
If you’re worried about what to do if your credit is bad, then take a look at your other assets. These don’t count as income but you could use them as collateral against your loan.
Collateral is something that matches the value of your no credit check loan. So if you don’t have the funds to pay back your loan then you can use your collateral to pay it off instead.
For example, you could use a property as collateral provided it matches the loan’s value. In this case, if you don’t have the funds in your bank account then you can sell off your home and use funds from the sale to repay the loan.
This might sound like an extreme measure. But as long as you don’t miss repayments and notices, the chances for a loan company claiming your property are extremely low. It’s just a way of demonstrating that you have the assets to give back if you need to.
This type of assurance is often enough to encourage a lender to approve your application.
4. They Don’t Supply a Thorough Employment History
Your credit score can tell a lender about your financial history. And poor money management from years ago can hang over your head for a long time.
But you can demonstrate new-found financial stability by showing lenders that you have a regular income. So take the time to provide a thorough employment history on your application.
Stable employment history will show lenders that you have a guaranteed income. This makes you more likely to repay your instant approval loan on time, which encourages them to lend to you.
Don’t simply list your jobs. The more detail you provide, the stronger your application will look. You should include:
- Dates of jobs
- Job titles and salaries
- Contact details for your employers
- Contract details (if this is applicable to your position)
Ideally, you should be able to supply consistent job records for the last few years to demonstrate your financial security.
5. They Don’t Check the Qualifying Requirements
No personal loan bad credit advice would be complete without this reminder. Always check out the specific requirements for different loans.
That way you save yourself time from applying for a loan that you might not get. And this gives you more time to pour into successful applications.
Your employment history is often part of these requirements. Ideally, you should supply a minimum of two years’ employment history but some applications will ask for more details.
If you’re self-employed or are freelancer, then you will have you prove that you have worked consistently. Tax returns are a great way to demonstrate your freelance earnings. You can often submit these as additional documents with your application.
You also have to meet the age requirements for a personal loan. These are in place to ensure that you can take full responsibility for your finances.
Most companies won’t lend to anyone under the age of 21. Some lenders set this limit higher at 25. And it can be extremely difficult for anyone over the age of 60 to get a personal loan.
Meeting these requirements is the bare minimum for all personal loan applications. So make sure you meet them before applying!
Save Yourself Time by Avoiding These Personal Loan Bad Credit Mistakes
Having a poor credit score doesn’t immediately rule out the possibility of getting a personal loan. Make sure your application is as strong as possible by avoiding these common personal loan bad credit mistakes.
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