How Can a Person Get a Loan with Bad Credit?
Sometimes money is urgently needed. But you may fail to get loans due to bad credit history. What should be done in this case? Where can you get a loan with bad credit history? The nuances of getting a small loan with a bad credit history are described in the article.
What is credit history?
Credit history is information about whether a person took loans and, if yes, how he or she repaid them. This information is stored and summarized by specialized organizations called credit history bureaus. Banks and microfinance institutions (MFIs) send a request to these bureaus when considering a loan application from consumers. If it turns out that the client has previously violated the debt repayment procedure, the request will most likely be rejected.
The storage and transfer of information about the borrower are governed by the law.
How long is the credit history kept?
Credit history is kept for 10 years. After this period, the information is destroyed. It can also be removed earlier. This happens in two cases:
- if the person has proved in court that the given information does not correspond to reality;
- if the person challenged the accuracy of the information in the bureau, and it agreed with his/her arguments.
What is a credit score and how is it calculated?
Credit history should not be confused with a credit score. The first is a set of objective information about the borrower. The second is the assessment that the bank or microfinance organization gives to the client and decides whether to give him/her money or not.
Thus, there are no uniform rules for calculating the credit rating – each company has its own rules. The calculation usually takes into account:
- past obligations of the borrower;
- current obligations of the borrower;
- the borrower’s income;
- property belonging to the borrower.
How to improve your credit score?
If you have bad credit history, you are unlikely to get a large loan. Or your application may be rejected at all. The most obvious way to improve it is not to borrow 10 years – after this period, the information will be deleted. However, not everyone has such an opportunity. Therefore, we will consider other options for correcting the situation:
- Demonstration of good faith. You need to find a bank or MFI that is ready to lend, and then repay the money in accordance with the established rules: avoid delays, underpayments. This will demonstrate the good faith of the borrower;
- Do not repay debts early. This also negatively affects your credit history. After all, early payment is a loss for the creditor;
- Challenging. The method is suitable only if the bureau has recorded inaccurate information. The information is disputed directly at the bureau. If this does not help, they file a lawsuit.
How to get a loan with bad credit?
Banks do not give loans to individuals who have a bad credit history. But microfinance organizations in most cases do not adhere to this rule. They approve payday loans to clients who have previously committed violations. They allow you to apply for a loan online even if you have a bad credit score.
However, most lenders refuse to give you a high-amount loan. Typically, the maximum payday loan amount is $1,000. But in difficult life situations, people are happy to get even this amount.
Advantages and disadvantages of payday loans
- the ability to get funds quickly – within 24 hours;
- easy application – no need to visit a lender’s office;
- round-the-clock application processing;
- bad credit is ok;
- percentage of applications approved is 80-90%;
- the ability to improve credit history;
- funds for any purpose;
- collateral is not required.
However, payday loans have a number of significant disadvantages. The main one is the high-interest rate, which can reach 1% per day. The loan term in most MFIs is limited to 1 month. In some organizations, it can reach 6 months. Loan amounts usually do not exceed $1,000.
Tips for maintaining a good credit score
A damaged credit reputation is not a sentence; most MFIs are loyal to such clients. In order not to be rejected by lenders, you should take care of your credit score in advance:
- repay loans on time;
- do not take a loan if you are not sure that you can repay it on time;
- if you have a mortgage or long-term personal loan and you have no ability to make the payment on time, then it is better to take a payday loan to avoid delays;
- do not overload yourself with loans in excess of your financial capabilities;
- when sending money to the lender on holidays and weekends, keep in mind that money can be credited to the account only on a working day.