Personal Loans for Bad Credit – What are They?

A personal loan for bad credit is a type of loan that offers options for borrowers with bad credit scores, typically below 580. Many personal loans for bad credit are unsecured, meaning they do not require collateral. However, some lenders may provide secured loans.

Credit scores can go down for various reasons, including loan default, a new application for credit, late or missed payments, or accumulation of debt. Bad credit can negatively affect you, especially when getting approved for a loan.

Although having bad credit will mean more restrictive terms, paying higher interest rates, and having trouble getting approval, accessing a personal loan with a low credit score is still possible. Read on to learn how to improve your credit score and shop for the best personal loans for bad credit.

What’s Considered Bad Credit?

In general, credit scores range between 300 and 850, and a score below 650 is considered risky and will attract high-interest rates. Borrowers with a credit score of 580 and below are considered even riskier, and it’s almost impossible to get lenders to trust their ability to pay back the money. Borrowers who fall in this category are referred to as subprime.

It can be extremely difficult for borrowers with bad credit to qualify for a personal loan or other financial products. So, it makes sense to try to improve your credit score before sending a loan application.

How to Determine Credit Score

Obtaining a personal loan with bad credit can be tough. If you’re not in a rush to get the money, it is a good idea to take time to build your credit score instead of proceeding to pay high-interest loan rates under restricted terms. Here are a few areas to focus on:

• Payment history (35 percent) – If you have a habit of skipping your credit card payments, your score will take a hit. Failing to make on-time payments on your other debt sources can also damage your credit score and limit your ability to obtain a loan.
• Length of credit history (15 percent) – If you have been building your credit history for a while now, there is a good chance your credit score will not be bad. Generally, a longer record of borrowing and making on-time payments demonstrates to lenders that you can pay your loan on time.
• Credit Utilization (30 percent) – Credit utilization is typically a ratio of your credit balance against the amount you are currently using. The ratio is calculated across all your debt sources in the case of many loans. A higher ratio proves to lenders that extending a personal loan can be risky because you may default.
• Types of credit (10 percent) – This covers every form of credit you’ve used in the past: mortgages, credit cards, student loans, car loans, or credit cards. This is also called your credit mix. Making faithful payments on all your credit can benefit your credit score. However, missing payments on one or more credit can damage your score.
• New credit (10 percent) – Applying for a new credit card can hurt your score. Usually, your score monitors your account’s credit balance and the number of credit attempts you’ve made in the past twelve months. It can be a good idea to try and pace yourself when applying for new loans or opening new accounts. Even better, try to avoid applying for new credit unless necessary.

How to Get a Personal Loan with Bad Credit

If you want to shop for the best personal loans for bad credit, here are a few things to keep in mind:

           1. Assess your credit score and credit reports

Your credit score and credit reports are the first things to consider before you apply for a personal loan with bad credit. This lets you know your credit status, identify any negative items and correct them in advance.

          2. Compare various lenders

When shopping for a personal loan for bad credit, you first want to know how much it costs. Compare different lenders to understand what you need to qualify and be eligible for the reasonable terms available. Some direct lenders for bad credit personal loans offer loans to borrowers with bad to average credit scores.

          3. Collect financial documents

Almost every lender will ask for various financial documents to complete your loan application. This information may include your personal contact and identification information, mortgage statement, recent bank statements, and personal loan information.

          4. Get prequalified

This process allows you to determine if you are eligible for a loan. Thus, reach out to your potential lender(s) to check if you can obtain prequalification for a personal loan.

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Myfundingchoices.com is one of the leading direct lenders for bad credit personal loans in the United States. We offer average to small personal loans for bad credit and can process your loan as quickly as possible once you meet our eligibility requirements. Apply today to get started.