Tips for Getting a Loan if Your Credit Score Is in the 512s

Do you know your credit score? A good credit score is considered to be 700 or higher, but a lot of factors can lower it. You might be late on your credit card payment or carry a high debt. You could have multiple debts that are too high compared to the money you make. Any of these things can cause your credit score to drop, and once it gets into the 500s, getting a loan can become especially difficult. If you find yourself in this situation, there are a few options for you to try that can help you to obtain the loan you need.

First, however, let’s talk a little more about what it means to have bad credit, how that affects your ability to borrow money, and then what you can do to get a loan.

What Does It Mean to Have Bad Credit?

Bad credit ultimately means that the lender sees the loan applicant as being a default risk. They generally look at two things: if the person has a history of not paying their bills on time and if they already owe too much money, especially compared to their salary.

How Bad Credit Scores Affect Borrowing

A credit score in the 500s will make it more difficult for the loan applicant to receive the loan they need. If they can receive one, they will often find that the interest rate and/or monthly payments will be higher because of the low credit score.

How to Fix Bad Credit: Know Your Score and Take Steps to Improve It

You are allowed to check your credit score for free once a year with three credit reporting agencies: Equifax, TransUnion, and Experian. The information in each one can be different, so it’s highly recommended that you look at all three.

Once you see that you have bad credit, there are some practical ways to improve it:

1. Pay all of your bills on time: According to Experian, your payment history accounts for more than ⅓ of your credit score, so showing that you are able to make all payments on time each month is an excellent way to raise your credit score.
2. Pay off your debt: The next largest proportion of your credit score is determined by how much debt you owe, so paying this down and practicing good debt management will cause your credit score to go up over time.
3. Delay applying for new credit: When you apply for credit, the lender will check your credit score, and this check can affect it. Why does this matter? It’s because other lenders will think you are trying to borrow from multiple sources, and that can make them think you are a greater loan risk.
4. Create a positive credit history: Experian Boost allows you to add your utility, cable, and phone accounts to your credit history. As you pay them on time and in full each month, you create a new credit history, which can increase your score.
5. Reach out for help with building credit: It could be as simple as having someone with good credit become a cosigner. Remember, however, that they become jointly responsible for the debt.
6. Consolidate your debt: Debt consolidation can help you avoid high interest rates. One loan that pays off all other debts can come with a more reasonable interest rate.

Ways to Get a Personal Loan with Bad Credit

With the number of lenders to choose from, it pays to shop around. The terms for a car loan from one bank, for example, may differ greatly from those offered by a different bank, so don’t be afraid to make a few phone calls.

It’s also wise to enter any loan inquiry with awareness of what you can afford. Consider carefully what you are realistically able to pay back each month, and request a loan that falls within those limits. Asking for a loan outside of that amount will often lead to a rejection, a situation that can further hurt your credit score.

Know the Different Types of Personal Loans You Can Consider

For those who seek to obtain a loan but have bad credit, they have a few options to consider. One is a HELOC or Home Equity Line of Credit. The borrower uses their house as equity, and they repay the loan principal as well as the monthly interest on the remaining balance.

Also possible is an installment loan, which is very common and used for the financing of cars, mortgages, and education. The loan repayment schedule is fixed for a certain number of years, and there is a set payment amount for each month.

If you have credit issues, you can also turn to peer-to-peer lending, in which a friend or family member becomes the lender. While this can be an excellent option, it’s recommended that you keep it professional and draw up a contract with the terms for the personal loan, including any interest rate and payment schedule.

Understand the Types of Loans to Avoid

Lending money is big business, and if you look around long enough, you will find plenty of companies that are willing to give you a loan. While that can seem like exactly what you need when your old car is done and you desperately need a new one, there are still some loans that should be avoided.

• Pawnshop loans: These come with high-interest rates and hold fees, making your loan a lot bigger in the end than you originally planned.
• Payday loans: These also come with high-interest rates – often as high as 391% once payments are missed.
• Car title loans: If you default on the loan, you will lose your car. It’s too much risk for something so valuable, don’t you think?
• Tax refund anticipation loans: Fees and interest rates can get as high as 36%, so when you do get your tax refund, it often won’t cover the loan you still owe.
• 401K loans: This is money you’re saving for your retirement, so by accessing it early, you’re slowing your efforts to save for when you no longer want to work. It can also cause you to be double taxed.
• Credit card cash advances: Doing this can hit you with interest rates of around 20% or even higher, and that’s on top of your credit card’s existing APR.

The Takeaway for Those Who Need Loans But Have Bad Credit

If you have bad credit, rest assured that you have solid options for loans – it just takes a little research to find them. It’s also equally important to remember that there are loans to avoid no matter how in need of money you may be. Ultimately, with time and effort, you can repair your credit. You can also be funded with a reasonable loan and avoid any need for debt relief. It all starts with knowing your credit score and taking practical steps from there. Why not get started today and take your financial future into your own hands?

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