Your credit score holds significant importance in your financial life, influencing your eligibility for various loans and credit accounts. In America, the average credit score has been steadily increasing as individuals gain a better understanding of its significance and how to manage their credit history effectively.
One approach to enhancing your credit is obtaining a loan and ensuring timely repayment as agreed upon. However, if you initially possess a poor credit score, you might wonder how you can secure a personal loan. Read on to discover more.
What Constitutes a Personal Loan?
Personal loans cater to your individual needs and offer versatility in their application. They encompass a broad range of legal purposes, including covering unforeseen expenses, making significant purchases, and consolidating existing debts. Various types of personal loans are available, such as:
- Secured loans: These loans are backed by collateral, such as a car, boat, jewelry, or artwork.
- Unsecured loans: Commonly referred to as signatory loans, these loans are secured solely by your signature on the agreement.
- Payday loans: These small loans are typically repaid on your next payday.
- Debt consolidation loans: Used for repaying outstanding debts.
- Short-term loans: Repayment for these loans occurs within a few months or years.
Understanding Bad Credit
Typically, a good credit score falls above 660 or 670, depending on the scoring model employed.
According to FICO scoring models, scores below 660 are considered fair or poor. Poor credit encompasses scores ranging from 300 to 579.
Vantage scoring models categorize scores under 661 as fair, poor, or very poor. Very poor credit includes scores ranging from 300 to 499, while poor credit falls within the 500 to 600 range.
If your credit score falls within the poor or very poor categories, it signifies bad credit. In certain cases, even a “fair” credit score might be deemed unfavorable when seeking loans.
Approaches for Obtaining a Personal Loan with Bad Credit
While having bad credit may pose challenges in obtaining loan approval, it is not an insurmountable obstacle. Here are some approaches you can take to increase your chances of getting approved for a personal loan, even with a poor credit score:
- Find a Cosigner:
One relatively straightforward method is to secure a cosigner for the loan. This involves someone with good credit agreeing to be responsible for loan payments if you are unable to fulfill them. However, it can be difficult to find a willing cosigner, as it places a financial burden on them and potentially affects their credit score if payments are missed.
- Explore Credit Building Loans:
Credit building loans are specifically designed to assist individuals with low or no credit scores in establishing or improving their credit. These loans often do not require a good credit score or involve credit checks. They typically work by securing the loan with a deposit equal to the loan amount. Regular payments over a few months or a year demonstrate responsible credit behavior, and once the loan is fully repaid, the deposited funds are returned. However, credit building loans are not a quick solution for immediate financial needs, as you need the funds upfront to secure the loan.
- Consider Secured Loans:
Secured loans may be more accessible than unsecured loans for individuals with poor credit. These loans require collateral, which can be an asset such as a car, boat, jewelry, or electronics. By pledging the collateral, you reduce the lender’s risk. However, be cautious when selecting a secured loan, as you may risk losing the collateral if you encounter payment issues or fail to meet the loan terms.
- Seek Loans Without Strict Credit History Requirements:
There are personal loan options available that do not emphasize a strong credit history. For example, Wise Loan offers loans that do not require an excellent credit score. Applying for a loan with Wise Loan is a quick process, and if approved, you may receive your funds on the same or next day. Additionally, Wise Loan reports your payment activity to two of the three major credit bureaus, facilitating the improvement of your credit for future financial endeavors.
If you are ready to explore your loan options, consider applying with Wise Loan today. Remember, obtaining a loan with bad credit may be a temporary concern, as proactive steps to rebuild your credit can yield positive results in the long run.
The recommendations contained in this article are designed for informational purposes only. Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.
More information on Installment Loans and how they work in your state: