Moumita D
If you are unable to take a loan or apply for a credit card, then it must be because of the bad credit score that you have. Now a person new to this will not have a credit score. S/he will be considered as a new credit. Having a good credit score is vital for financial purposes. But a bad credit score will create major trouble in your financial life. Here I will break down to you, various ways you can use to deal with a bad credit scores.
And don’t forget, these are ways when you are in a desperate situation. Otherwise, you should be focusing on improving your credit scores in the first place.
Also, check out a few ways to get money quickly when in urgent need for cash
What is a credit score?
A credit score is basically the number or rating that an individual achieves on the
Bad credit is the failure of a person on paying bills on time and the likelihood that they will fail to make timely payments in the future.
It is generally considered between 300-850. Higher the score, the better the chances of a borrower to get financial advantages. In India, CIBIL and Transunion are two major individual credit rating agencies.
How to calculate Credit scores?
There are a few main factors on the basis of which credit score is calculated:
- Payment history(35%)
- Amount owned(30%)
- Types of credit(10%)
- Length of credit history(15%)
- New credit(10%)
When it is said to be a Bad Credit?
An individual is considered to have bad credit if s/he has a history of failing to pay bills on time and chances of failing to do the same in the future. That person is considered to be a risky borrower.
It is indicated by a low credit score. They range from 300 to 850. A bad credit score will result in the rejection of an application for a loan, credit card, or apartment.
There might also be unexpected credit limit cuts and an increase in interest rate.
A good credit score will prove that you are a dependable borrower and hence will build trust with the lender, This might also result in a lower rate of interest and easy access to loans.
How to get rid of bad credit?
Updating information on a borrower’s credit report will change their credit score. You have the chance to improve your credit score and demonstrate that you are a responsible borrower.
1. Correction of report:
Any wrong information might be listed such as accounts that are never opened. You can rectify these errors by reporting to the company explaining in detail these mistakes. If you have any items or accounts in your report that you may not remember opening, then you might be a victim of identity theft. You might have to institute a credit freeze or fraud alert and notify your bank about that.
2. Improve Your Credit Score:
Adding positive information by improving areas of your credit score will help you to increase your credit score. Your payment history has the biggest impact on your credit score and hence the best way to increase your credit score is to pay off debts. Avoid late payments by keeping track of all monthly bills with a file system or by setting due-date alerts.
3. Credit utilization:
It is the portion of your credit limit that you are using at a given time. The best way to keep your credit utilization in check is by paying credit card balances in full each month. Keep you total outstanding balance at 30% or less of your total credit limit, from there you can lower it down to 10% or less.
You can also ask for a credit utilization ratio by asking to increase the credit limit.
4. Limit your request for new credit:
Hard inquiries can affect your credit score adversely. These include an application for a new credit card, a mortgage, an auto loan, etc. Occasionally having a hard inquiry won’t have much effect but a lot of them in a short period of time will damage the credit score. It can be considered by the bank that you are taking loans because of some financial difficulties and hence it will put you in a place of risk. Hence, to improve your credit score, avoid applying for new credit for a while.
5.Fatten up thin credit file:
By improving your thin credit report, you can earn a good credit score. There are different programs such as Experian Boost, UltraFICO, etc. which use your banking history and utility payment to build the score. Things that might add-on are having a saving cushion, maintaining a bank account over time, paying your bills through a bank account on time, etc. If you pay monthly rent, then there are several services that allow you to get credit for those on-time payments.
6. Managing old accounts:
If you have old accounts then dont close it down, It might be helpful to increase your score. The age of credit portion of your credit score looks at how long you have had your credit account. The older the account age, the more favorable you appear to your lenders. If you have delinquent accounts take action to solve them.
7. Consolidate your debts:
It is the act of taking new loans to pay off other liabilities and consumer debt. In case
How to take loans with bad credit?
This might surprise you but you can take a loan even with bad credit under certain conditions. These loans are either secured or unsecured which vary by lenders.
Getting a personal loan with bad credit isn’t impossible. With proper research, you can find some affordable loans. Well, there are a few things you might need to be aware of:
!. Ensure that you can repay the loan
2.Check for prequalification. Many online lenders allow you to check for that before applying for loans.
3.Some lenders offer secured loans which is backed by assets like a home or car.
4. Prepared for hard credit check which might damage your credit score. You can recover that eventually, once you make pthe payment. you have a number of outstanding debts, it would be beneficial if you take a debt consolidation loan from a bank or credit union and pay it off. Thus you are left with just one payment.
5. You can also apply with a co-applicant who is creditworthy. Then your eligibility to secure a laon gets enhanced.
Types of bad credit loans
You can get personal loans from banks, credit unions and online lenders. The right choice depends on how you want to deal with with needs. There are multiple options, including traditional personal loans:
1. Secured & unsecured personal loans-
Personal loans may be secured or unsecured. A secure loan requires something valuable that you own known as collateral for example property or jewelry. If you fail to repay, the lender may take possession of the asset, sell it and apply the proceeds to your outstanding debt. An unsecured loan doesn’t require collaterals which increases the risk of the lender. These may lead to a lower borrowing limit, a higher interest rate and a higher credit score to qualify.
2. Payday Loans
Payday loans are short-term and often have a very high-interest rates based on the borrower’s profile. They charge high fees in exchange for fast cash, and repayment is typically due by your next paycheck.
3. Cash Advances
Cash advances are short-term loans from banks or any other lender. It is also referred to as certain credit card issuers allowing cardholders to withdraw a certain amount of cash. Though have a high-interest rate they are preferred by borrowers as there are fast approval and quick funding.
4.Bank Agreements
Depending on your bank’s policy and also banking history, some banks may provide you short-term loan. Though bank agreements have the advantage of fast cash, since they are not official policies, they are not reliable to borrow money.
5. Student loans
A student loan may meet your needs if you are trying to pay for education costs, like tuition, textbooks, etc. Student loans are easily available sometimes on the basis of merit and the college you are choosing.
There is always a way to combat bad credit scores. Before opting for any loan with a low credit score always do research that suits your requirement and of course can be managed by you in future
FAQ
Can I get a loan to pay off debt with bad credit?
Yes, you can get loans from various lenders even with bad credit provided you follow the necessary guidelines and also meet their criteria. These often include collateral and high-interest rate.
Many banks, credit unions, and lenders provide loans on bad credits like Moneymutual, Creditloan.com, PersonalLoans.com, etc.
Payday loans provide fast money for a short period of time with a high rate of interest.
