A blemish on your credit history can make it more difficult to get approved for a loan, but you do have options. If you need a financial solution that won’t rule you out based on past mistakes, the good news is there are lenders who will still consider your application.
In this article, we look at how to get a loan with bad credit, the steps you should take, and some advice for improving your credit history moving forward. We also discuss home and car loans specifically.
Step 1: Check Your Credit History
The first thing you need to do is find out just how problematic your credit history might be. This also gives you the opportunity to review your report for any potential errors – the last thing you need is a false incident negatively impacting your credit score.
There are several credit-reporting bodies that are obligated to provide your credit report for free once per year. These include:
You can also access a free report within 90 days of having a loan application rejected.
You can read more about accessing your credit report on the government’s Office of the Australian Information Commissioner website.
Step 2: Select a Viable Lender
Once you know if your credit rating is excellent, very good, good, average or below average, you’ll be better able to apply with the appropriate lenders. If your score is below average, you can skip the big banks and other institutions that won’t consider you and move directly to companies that specialise in bad-credit loans.
It’s also worth looking for a lender that uses real people to make decisions rather than relying on algorithms. A human is sometimes more likely to say yes – even when a computer says no.
Finding the right lender can feel overwhelming, so you may prefer to work with a finance specialist like Cigno to arrange the loan for you. We know which lenders will consider borrowers with low credit scores, so you’re less likely to have your application rejected.
Step 3: Apply
This step doesn’t vary too much from applying for a regular loan. However, it’s in your best interest to be honest and upfront about your credit score and provide as much evidence as possible showing that your current circumstances won’t lead to any repeats of previous defaults. For example, it may help if you bring recent bank statements that show you successfully paying bills and repaying other loans.
Step 4: Improve Your Credit Score
You’ve experienced the restrictions a low credit score can place on your access to loans, and you’ve likely paid more interest than you would have with a healthy credit rating. There’s no better time to take a serious look at improving your credit history.
The obvious place to start is by repaying your bad-credit loan promptly and in full. Then you can consider some of these tactics for improving your score:
- Lower the limits on your credit cards
- Set a direct deposit schedule to ensure all your rent and bills get paid on time
- Aim to pay off your credit card in full every month
- Consolidate your existing loans/cards into a single loan
- Make mortgage and other loan repayments on time.
Taking steps now to bump up your credit score will make it easier in the future to get approved for loans with lower interest rates.
How to Get a Home Loan with Bad Credit
The steps above are all relevant for getting a home loan. However, there’s an extra tip to consider when applying for a mortgage: lenders mortgage insurance (LMI). If you can save up enough of a deposit (usually around 20%), you may not need to worry about LMI. This means you skip the extra step of having a mortgage assessor review your application – and that’s one less person who might reject it.
How to Get a Car Loan with Bad Credit
Just like getting a personal loan, successfully applying for a car loan with bad credit involves:
- Knowing your rating in advance
- Being honest and transparent in your application
- Taking steps now to improve your rating
- Proving you’ll be able to repay the loan (e.g. with evidence of stable employment and other prompt repayments).
To discuss the short-term finance solutions available to you based on your credit score, feel free to contact our friendly team today.