A Poor Credit Score Doesn’t Have To Mean You Can’t Get A Loan

A low credit score can make getting a personal loan difficult. Applications for personal loans involve checking the prospective borrower’s credit report. If the report returns poor credit—low scores or too many delinquencies—many lenders will deny the loan. However, all is not lost. There are various things borrowers can do to increase their odds.

Credit Karma

Credit Karma provides the means to check your credit score and obtain credit reports for free. They even provide the means to dispute erroneous information through their website with two of the three major bureaus. Borrowers can also contact each of the three major credit bureaus themselves. Each of them allows one free report copy a year.

The credit reports will show whether the borrower truly has bad credit. Look for erroneous record entries and items past their limitation date. Borrowers can dispute these items to try to have them removed from the reports.

Other factors found in the reports concern lenders. Is the borrower overextended—using too much of their credit limits? Are there delinquent payments over the last two years?

What Affects Your Credit Score?

Another advantage of Credit Karma is that they advise the best way to improve credit scores and the most critical factors. Having unpaid debts can be harmful—put yourself in the lenders’ shoes. Conversely, keeping up payments, even the monthly minimum, is evidence of both ability and reliability, which a lender appreciates. The longer you have been paying, the better. Using over 30% of your overall credit balance might suggest to a lender that you could become over-extended.

A less important factor is the number and types of credit accounts. Lenders can be impressed if you have successfully handled several different types, e.g., personal loans and credit cards. Yet another factor is “hard inquiries.” That is, any credit application is recorded. But the good news is that these are only temporary reductions in the score.

What’s A Good Credit Score?

The range of credit scores lies between 300 and 850. A fair score falls between 580 and 669, while a score under 579 is poor. Applicants in the latter range may need a co-signer or collateral, if the bank considers them at all. Borrowers could also try their luck with credit unions that have more flexibility in their lending.

There are also online lending agencies that deal specifically with applicants with poor credit. These types of loans have high interest rates and higher monthly payments. There may also be various expensive fees for the application process. In the case where the lender insists on a co-signer and high-interest rates, applicants may find that a credit card provides a better outcome.

In the worst case where the lender denies the loan, applicants should request a review to determine changes needed before reapplying. But don’t go into debt just to get a better credit score! Being totally debt-free has its own ample rewards.