It’s easy to criticize an individual for having a bad credit score, but it is important to keep in mind that no two lives are the same. We can all agree that certain individuals receive better cards to play and some others simply build themselves better hands. Whatever your situation might have been, keep in mind that a credit score can be improved, no matter how low it is.
If you are reading this article it probably means that you are thinking about getting a loan or you are in need for one, and chances are you’ve been rejected from more traditional institutions. Its nothing to be ashamed about, but is important to understand that the best you can do is to change your strategy.
The first thing you need to concede is that it is unlikely that a traditional financial institution will lend you money, and as I said before that’s alright. There are many other firms and institutions willing to take a higher risk with individuals with a low FICO Score. The interest rates you will receive will not be comparable to a traditional personal loan from a bank like Wells Fargo or Bank of America, but at least it will help you overcome your cash necessity and will also set the first stone towards fixing your credit score.
After getting the funds the journey will be starting, you need to always remember that your goal is to improve your score. After utilizing such an expensive borrowing mechanism there isn’t much left for you if you default on it for whatever reason. Think about your future and also how this will impact your life.
If you get to overcome repaying for this loan on time, without missing a single payment you will see how your score starts to get better. This is a task that will take you some time to complete, you won’t see your score rise 50 points in one night. But with the right amount of patience and care, you will be able to see it rise 150 in a couple of years.
In this list, we will cover the best options available for individuals with bad credit scores. Keep in mind that there might be other options with a cheaper interest rate but we are only considering the ones with decent customer approval and good rating. Many other firms offering this type of lending are considered to lack in terms of transparency so it is important to do your own research and review before committing to one over the other.
FICO Credit Scores
Even though there are several methodologies and models utilized in the US to determine the creditworthiness of an individual, the most common is the FICO Credit Score which is used by 90% of US lending.
The FICO model classifies individuals in five different categories, ranging from 300 which is the worst score possible, all the way up to 850 as the perfect score. Even though this is the benchmark utilized by most lending companies, it is pretty common to see individuals struggling to understand where they are standing and the possible steps that could help them improve their score.
Life is dynamic and it is understandable that certain situations are going to be completely unexpected and they could easily represent a treat for your credit score. It is key to understand where you are standing and also how your decisions will ultimately affect your credit. A bad credit score will hunt and affect most of your financial aspects in life, from a mortgage to a small credit at a retail store.
The best possible advice I could give you is to pay extra attention to your spending habits and also to the importance you give to pay for bills on time, even though it doesn’t sound like much but it can truly help you improve and stabilize your score.
You can find yourself in this category either because you have no credit history or because you have damaged your score over time. The most common causes for such a bad credit score are related to defaulting on payments of multiple lenders, this is a red flag to all lenders that you have a history of not paying on time, or not doing it at all.
The other possible reason for such a number could be because of Bankruptcy, in this case, keep in mind that it will be a part of your record for a maximum of 10 years. If this is your case, there are not many things you could do in order to improve your score.
If you already have a bad credit score don’t feel bad, not only you are not alone but it also means that the only place you can go is up! You should reach to your financial advisor or your local bank in order to receive guidance on how to improve your score. Keep in mind that this is not something that will change from one day to the other, but the sooner you start the sooner you will be able to see the results reflecting on your score.
In a fair category, you are a little under average, most likely you’ve had problems with payments here and there but without much problems or delinquency. Under this classification you will be able to apply for credits and chances are you will be approved, the only problem is that the rates at which you would be able to borrow money will blow your mind.
Please do your research and analysis to understand if you will be able to take a loan while on this category. Interests rates at this level will be so expensive that if you don’t take proper measurements to ensure payment, you can easily downgrade your score to the lowest category available.
With little or no space to play, you should be aware of your condition in order to start improving it as well. Don’t let your credit score hit rock bottom in order to start doing something. The sooner you start the more money you will save. It is worth noticing that financial institutions perceive individuals in this category as subprime borrowers for what they concern.
If your score is in this category it means that you are above the Average American. Keep in mind that at this level you will be able to get your hands on most types of loans, but the offered rate would still be above the average on that category. This is a perfect example where having a relatively positive credit score will even cost you money (just imagine how expensive is it going to be if you downgrade).
To put it into perspective, when a bank or a lending agency see a “Good” Fico Score they are forecasting that historically speaking only 8% of individuals in this category will incur in major delinquency in terms of repaying.
Only 25% of all Americans can say that they are in this category. If you have done things the right way all your life and you are lucky enough to have a clean slate you should feel proud about it. With all the points that are taken into consideration to be part of this higher range, it is definitely not easy to maintain. Continue with all the healthy habits that have brought you here.
This should become your starting point, if you manage to sustain this category you will save money every time to apply for a loan. The premiums on interests rates will surprise you once you pass this class.
At this point is where you can say you are a little bit more special.
Being able to be part of the 21% that builds the top of the range is a big achievement. Under this category, you are considered as an individual of very low risk as you have proven to be millimetrically responsible with your payments and your debt management. This category is what advisors and other experts usually refer as the Big 8.
Besides being able to access any single type of loan or credit in the market, you will also be able to enjoy from preferential rates under the average of the market. This is a level where banks will call you to offer their services and not the other way around.
Best Lenders for Individuals with a Bad Credit Score
1.Upstart – Best For Individuals with No Credit History
Upstart might not be the most sound name from this list but the company is truly a hidden gem in the market. The company was founded in early 2012 by a group of ex-executives from Google and a private fund.
Over the years they’ve gotten a substantially strong fan base due to their approach to credit risk, this is a firm where instead of solely focusing on a FICO score the company also analyze and takes into consideration how other factors will influence in your creditworthiness. Some of the factors they utilize in their model are education, GPA, area of study and more.
From a loan perspective, the firm is the goto for individuals that don’t have a credit history or simply credit score that was not good enough for more traditional companies.
This is a very sound company with the backing of important names in the tech industry like Google Ventures and even MarkCuban.
APR: 7.69% to 36% (This is where your credit score will make the difference)
Loan Type: Personal Loan
Loan Amount: $1,000 t0 $50,000
Minimum Credit Score: 620 (The firm does not request credit history)
Length: 3 or 5 years
2. OneMain Financial – Best For Really Bad Credit Scores
One Main is a financial institution with more than 100 years of history. Over its life, the company has changed their business model probably a couple of dozens of times, from being focused solely on corporate banking to being the distress loans subsidiary of one of the most important American Banks. Disregarding what the end state has been in every step, the company has remained as a strong and necessary part of the American financial system.
Over the past decade, the focus of the firm has been towards offering loans to high-risk individuals. With the model, the intention is to offer a borrowing solution to those individuals without proper credit history or a crashed credit score. One Financial will inquire on your FICO score just to determine how low it is, and to assign their rate accordingly.
If your credit score falls in anything above “Good”, you should try to apply somewhere else as the interests rates that will be offered can be incredibly high to a traditional bank or lender.
APR: Anywhere from 16.05% to 35.99%
Loan Type: Personal
Loan Amount: $1,500 to $30,000
Minimum Credit Score: None
Length: 24 to 60 months
3. Lending Club – Best For P2P Loans
Lending Club is another disruptive FinTech company straight out of California. The company focuses on connecting lenders and borrowers through their app, and charging a comission of any loan processed.
This is a very simple and straightforward operation that focuses on offering borrowing solutions to individuals who have been rejected by traditional financial institutions.
You can see the company as a market place where lenders offer their money, the conditions to borrow it and also the desired rate. Not only the platform offers to lend from individuals in a more traditional p2p experience, but they also offer access for certain institutions to offer their money through the app.
If you have a credit score with one too many dents you might want to take a look at LendingClub, it is very likely that you will be able the find the lender that fits your profile, and also the one you will be able to repay. Keep in mind that in this cases borrowing will be extremely expensive due to your credit score, it is keen for you to understand what all the payments will be an also if you have the capacity of repaying it fully. There is no reason to continue damaging your credit score.
APR: 6.95% to 35.89%
Loan Type: Personal
Loan Amount: $500 to $40,000
Minimum Credit Score: 600
Length: 36 to 60 Months
4. Prosper – Best For Flexibility
APR: 6.95% to 35.99%
Loan Type: Personal
Loan Amount: $2,000 t0 $40,000
Minimum Credit Score: FICO Fair
Length: 36 to 60 months
The worst an individual can do is to simply surrender to believe they can not get their creditworthiness back. It is not an easy task but with good effort and time, it can be done. There are many situations in life that can easily put any of us in a position of having to look for funds at all costs. Even with a bad credit score, I’m sure that if you take the time yo look between providers, you will be able to get the loan you need.
As a result of not being trustworthy, you will have to deal with obscenely high fees and interests rates, but at least you will be able to overcome your situation, whatever that is.
Chances are this won’t be the last time in your life that you need to get to a financial institution expecting some sort of credit. Not only investigate who will lend you with your current score but instead investigate deeply how to make everything better.
Improving your score, even if it means doing it point by point will surely grant you a comeback after some time. This is one of those situations where the way of the turtle will be needed!
Credit usage represents how much of your standing credit balance you are using on average. This means that if between credit lines and credit cards you have available credit for $10k, and you use $2,000 your usage would be 20%.
Even though there is not a magic number, it is important to always remember that the higher the usage the more it will affect your credit score. Many experts and financial advisors recommend to never exceed 30% at any time, this will ensure that you won’t be affecting your credit score.
The idea behind having credit is to take advantage of it, having lots of credit lines and credit cards unused will do even more harm to your score than if there were used properly.
The answer is “No”, but also “Yes” at the same time. The situation here is that there are two different types of credit score inquiry, one being soft reviews that are usually done by you or your employer and they will not have an impact on your score.
On the other hand, if the inquiry is being done by a financial institution or a credit card provider it will be considered as a Hard review, and it will cost you some points of your score (at least for a couple of days).
The reason for hard reviews to have an impact is that they usually come before new products or credit types. The idea is to be preparing the score beforehand. With this, I mean that other credit agencies will see that there is a movement being done. This also prevents individuals from simply applying to 10 credit cards at the same time.
The lower the credit score the higher it the probability of an individual falling on default, this means that for the same loan of money a bank will be taking considerably more risk. Just like with any type of investment, at a higher risk, a higher yield would be expected in return.
To put it into perspective, a personal loan for an individual with a perfect score could range between 3.2% and 5% depending on the characteristics and the tenure desired. The exact same loan for an individual with a very bad score could range between 35% and even 100%. This should be a reminder of how important it is to take care of your credit score.
There are many actions that you can take in order to improve your credit score, the most recommended ones are:
- Make all your Payments on time: Even though it sounds like something most individuals should be aware of, in reality just a small percentage of individuals will truly automatize their payments or will follow a strict payment plan with unbreakable days and times to proceed with the payment. By making sure the payments will be taken care of you can sleep at night knowing your score will be taken care of.
- Keep Credit Cards under a tight leash: Not only paying them on time but also avoid a high usage of your credit line as it will immediately start impacting your score.
- Apply for new credit only if needed: As mentioned in question number two, avoid requesting credit unless you are truly planning on using it. Not only you don’t want credit agencies doing hard inquiries on your score but also you don’t want to have such a large line of credit since it will start acting as a barrier for other types of debt.
- Aim for long term credit: If done properly it will help you achieve a historical record and will provide you more data to be used for all the calculations. This will help you smooth any dents in your score.