Applying for a loan is a brain wrecking process in itself with all the paperwork and jargons involved. This becomes even more difficult if you have a poor credit score. Credit scores range from 300 to 850. Having a FICO score of 579 and below means you have poor credit score. A FICO score of 580 to 629 means you have a bad credit score. To qualify for loans, your goal should be to improve your credit score (ideally it should be above average, i.e. FICO score of 630 and above).
Other than credit score, other factors like debt to income ratio, determine the terms of your loan. Having a poor or bad credit score almost always means a higher interest rate. If you have poor credit, but have a steady income and low debt levels, the probability of you securing a personal loan is higher.
As a borrower, you may have bad or poor credit due to one or more of these reasons:
- Default in making any of the repayments
- Shopping extensively for a loan but getting rejected repeatedly.
- Has never taken a loan in the past and there’s no credit history to validate.
To procure a loan in spite of having poor credit:
The first step should be to contact your local bank and apply. If you already are their customer, chances are they might offer you an unsecured personal loan. There are some financial institutions which specialize in offering bad credit personal loan. The banks look for – your length of credit history, fair to bad credit score, collateral in case the loan gets defaulted.
In most cases, traditional banks do not offer loans to those with poor and bad credit. That being the case, you can always look for online lenders. Benefits of procuring a loan from online lenders are the convenience and swiftness of process, flexible repayment tenure etc.
Approaching peer to peer lenders. These companies use technologies and data analytics to more accurately assess whether the borrower is deserving of the loan or not. Credit score is not the only guideline they use. The data points they usually consider are “ income, expenditure trends, educational qualification, any assets and investments etc.
Technological developments have inadvertently made lending money, especially for those with poor and bad credit, a simpler task. As internet security has grown in leaps and bounds, money gets transfer to the borrower’s bank account seamlessly and swiftly. Online also provides the convenience of gathering data from multiple sources and thus making an informed decision.