Does your basic credit instinct tell you to get a loan? How good or bad is your credit score? There are bad credit loans available in the market in case your score turned out low.
Your credit score is an important factor when applying for a loan. It reflects the borrower’s credentials in paying back the funds and the potential risk of default. A good credit score ranges between 800 and 1,200. The credit score system varies depending on the credit bureau (i.e. Equifax, Experian, etc.).
A credit bureau is an agency that collects and researches individual credit information which lenders use to make a decision on granting loans. The borrower may request a free copy of the credit file from credit reporting bodies in Australia.
If there are incorrect information in your credit report, you must inform the corresponding credit bureau at once as this could affect your chances of loan approval.
The information listed below takes into account in your credit score calculation:
- Previous credit applications
- Previous unpaid loans
- Previous loan defaults
- Bankruptcy history
You would like your credit score to be at least above average to influence the credit institution’s decision in lending you the funds. Your credit score also affects the loan amount (and interest rates) they will allow you to borrow.
Banks and traditional lenders set criteria and generally won’t give access to funds to people with bad credit scores. Higher interest rates should also be expected with this type of loan since it could be unsecured, where no collateral is involved.
How to be approved for bad credit loans?
No need to be apprehensive if you find out that you have bad credit. What’s more important is the reason why you are getting a bad credit loan. Is it really imperative? Can you afford and pay it back on time and in full?
There are specialist lenders who are considerate and willing to help regardless of low credit scores. Although approval is not guaranteed, there are ways to better your chances for bad credit loans.
- Check the eligibility — Lenders set the criteria for eligibility so they are open for calls from borrowers to discuss their financial situation and carve out want they can offer.
- Order credit report — You can request your credit report directly from the credit bureaus such as Equifax and Experian. Within 10 days, the agencies are required to give a copy of your credit report. There must be assurance that the credit information is correct, updated, and relevant as these are vital to assess your creditworthiness. The information that can be gathered is personal details, consumer credit information, defaults, public record, and commercial credit information.
- Bad credit loan options comparison — Since your applications will show up on the credit file, comparison of your loan options beforehand is advisable. Examine the convenience of application; the ways they credit check; interest rates and fees; and repayment terms.
Improving your credit score
Here are ultra practical ways to improve your credit score for future loan needs:
- Debt consolidation — You can take out a new loan to pay off debts and liabilities in debt consolidation. The multiple debts are combined into a single piece of debt for more consumer-friendly payoff terms: lower monthly payment, lower interest rate, or both.
- On-time payments — Listed on your credit report is the last 2 years of your repayment history. It’s important to show that you are responsible for your repayments and if you have lates, make sure to pay the succeeding ones on time. This also demonstrates your repayment behaviors with your utility bills such as electricity, internet, and mobile plans.
- Stable job — A stable job, hence a steady source of income, proves you can pay back what you owe.
- Homeownership and rental — Your capabilities to pay rental and the own a home establish to lenders that you will be accountable and responsible in handling your loans.
- Avoid multiple loan applications at once — Whether it’s approved or not, each loan application will be listed on your credit report. Multiple applications are frowned upon and have a negative effect on your credit score. Until your score improves, wait before applying for the next one.
Always see to it that you are in a better financial situation possible to acquire and make the loan repayments. Do not make any commission if you’ve just changed job, changed address, or simply do not have the means to pay off the loan. If you think you can manage a bad credit loan, take the step and apply here.
Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.