If you’re getting ready to make a major purchase like a home or vehicle or even are low on cash for bills, loans are a common way to bridge the gap. However, banks are hesitant to make that investment unless they’re confident they’ll get it back. One of the key factors they look at when making that decision is your credit score, and someone with a lower credit score can have trouble getting a loan.
But it doesn’t need to be a dead end. Here are some simple strategies that can make it easier to secure a loan even without an ideal credit score.
Why Is Credit Important?
Consumer credit and debt have been around in some form for over 5,000 years when the first financial contracts and loans were drawn up. Today, it’s a multi-trillion dollar business in the United States alone. It’s an elaborate system that allows people to borrow money to make payments or buy goods and services with a contract specifying the terms of repayment—a critical factor in any thriving economy.
Your credit score is a number created by various factors, primarily your credit and payment history. If you have existing loans or credit cards, credit authorities analyze these numbers to see whether you make payments on time. If you’ve paid off major loans in installments before, such as a past house purchase, this will factor in heavily. Even if you don’t plan to take out a loan, good credit history is important as it’ll influence landlords and other potential purchasing opportunities in your favor.
Improve Your Score First
The best way to overcome a low credit score is, surprise, not to have a low credit score! It may seem obvious, but many people don’t know that they’re not locked into their current credit score permanently. Even if you’ve fallen behind on existing loans and caused your credit score to drop, many creditors may be receptive to a deal that gets them payment at a slower pace, which will improve your score.
Your priority should be keeping up on credit card payments and paying down the balance on those, as lenders closely watch debt and prefer less than 30 percent usage. Even if you’ve had trouble in the past, developing a reliable payment schedule shows you’re more trustworthy on payments than you used to be. The most recent credit history is often what lenders look at most closely.
Shop Around for Lenders
After a long string of rejections, it may be tempting to leap at the first offer that comes along. However, many loan companies specialize in catering to borrowers with a poor credit rate that limits their options. Those can come with punishingly high-interest rates and penalties you don’t want to risk. You don’t want to be locked into doing business with these companies.
There are plenty of lenders who work with subprime borrowers without trying to lock them into unfavorable contracts. One of the best ways to avoid dealing with a subpar loan company is to study up on the rates you could encounter and seek a lender within this range.
Sometimes you need a loan quickly, even if payday is right around the corner. This is common when you need to pay off an urgent bill or debt, such as rent, and the person you owe isn’t receptive to an extension. In this circumstance, a payday loan can be an excellent way to get past that hump and pay the more urgent obligation.
Payday loans are short-term unsecured loans, also known as cash advances, and they’re backed up by you giving the lender a post-dated check for when you expect your money to come in, aka payday. If the money isn’t in the account by the day of the check, the borrower could face a bounced check fee and potential penalties. While these can be high-risk for both parties, they’re an effective way to handle an emergency need for money. Read Think Save Retire’s blog for more information.
Secure Your Future Loan Today
A higher credit score is always better when it comes to securing loans, but don’t be fooled. If you have a lower score right now, there are some simple ways to raise it and make yourself more appealing to lenders. The smallest first step is a step in the right direction.
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