A bad credit loan is a short-term financial fix for consumers who need to borrow money but have a bad credit score or bad credit history. Bad credit loans get their name because the borrower has a “bad” credit score that forces them to deal with very high-interest rates when looking for a loan.
When used correctly, a bad credit loan could be the starting point for a financial turnaround. It should improve your credit score and ultimately make you a more attractive prospect for loans. Reach out to us for easy and affordable installment loans online.
How to apply for a bad credit loan?
- Start by checking your credit score to see if you fall into the “bad credit” category and how much you need to improve your credit score to improve your loan status.
- Fill out a loan application from banks, credit unions, and bad credit loan online lenders
- Provide lenders with the necessary documents regarding your income and expenses to confirm the interest rate you will be paying
- View loan offers, compare rates and terms of each option
- If approved, get financing and get to work paying off debt and improving your credit score
Pay on time every month and you should see a nice increase in your score in just six months.
What is considered a bad credit score?
Credit scores range from 300 to 850, and while there is no official beginning of the “bad credit score” category, it’s safe to say that if you’re below 650, you’re considered high risk, meaning you’ll pay the highest interest rates. People in this category are prime candidates for bad credit loans.
The definition of a “good” and “bad” credit score varies from lender to lender. Some won’t touch anyone with a credit score below 650; some sell to consumers with scores below 650.
So it’s hard to say what makes you “good” or “bad” on a credit scoreboard, but the accepted range goes something like this:
- 760-850 – Excellent
- 700-759 – Very good
- 660-699 – Fair
- 620-659 – Poor
- Score below 620 – extremely poor
Your credit score may be the most important factor in getting a loan approved. It consists of five parts, each of which carries a different weight. Those parts are:
- Payment history (35%). Do you make payments on time each month or do you carry over the balance from month to month? Miss even one payment and it will hurt your credit score.
- Amounts owed (30%). How much of your available credit do you use each month? Use more than 30% of your credit limit and your score will drop.
- Length of credit history (15%). How long have you been using credit? Closing accounts is harmful, especially if there is an outstanding balance.
- New credit (10%). Frequent card applications are negative. You look desperate. Don’t apply for a credit card unless you need it.
- Mix of credits (10%). What other forms of credit do you have? Credit cards, mortgages, car loans, student loans, installment loans online, or if you deal with them successfully, help your credit score. Not paying on either one hurts your score.
Bad credit is not a perfect solution to a problem. Bad credit interest rates are higher, usually significantly higher than regular loans. The terms are also short, usually, one to five years, which means you have to be committed to finishing what you start. Other debt relief options, including debt management or nonprofit debt settlement, may prove to be more cost-effective ways to improve your credit score. It would be wise to seek the advice of a nonprofit credit counselor in creating an affordable budget and deciding whether a bad credit debt consolidation loan will solve the problem or just add to your troubles.