Obtaining a personal loan with a low credit score

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Obtaining a personal loan with a low credit score
2 years ago
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Even if your personal loan application was rejected because of your low credit score, keep your hopes up because you can still obtain that money you need to replace your broken furnace or have your car repaired. There are steps you can take to increase your chances of getting a personal loan approval despite your low credit score.


1. Improve your credit score prior to filing a personal loan application.
If you know that your credit is bad and you can wait for sometime before applying for a personal loan, you may want to work on improving your credit first. Obtain a copy of your credit report from the three credit reporting agencies: Equifax, Experian, and TransUnion. By law, you are entitled to a free copy of your credit report from these agencies once a year. Review your credit report and see if there is anything included that shouldn't be there. If you spot a mistake, write to the credit agency to correct or remove the erroneous entry. Make sure to send a formal, written request.


2. Apply for a secured credit card.
When you have looked over your credit report and taken steps to correct it if needed, you should try to get a credit card. Secured credit cards are special credit card products for people with bad credit. To obtain a secured credit card, you will be required to deposit money into a savings account or to your credit card account in an amount equivalent to the credit limit of your card. When you use the secured credit card to purchase anything or pay your bills promptly, the issuing company may evaluate your account and consider returning your deposit. Or, the issuer may decide to add it back to the available balance on your card account as if a payment was made for the same amount.


3. Try to get an unsecured credit card.
If your credit score improves as a result of making timely payments on your secured credit card, you can apply for a regular credit card, one that is unsecured. For all you know, you might get an approval. However, make sure to choose carefully which card to apply for. In addition, do not apply for several credit cards at the same time. You should be aware that each time you file a credit card application, the card issuing company inquires about your credit record. For each inquiry the credit bureau receives, your credit score goes down and this will only make it more difficult for you to get a personal loan approval. And if you get approved for several credit cards, you may end up having to pay a number of credit card bills. Now, if you fail to pay your bills, your credit score suffers once again, reducing your chances to be successful in getting a personal loan.


4. Take out a secured personal loan.
If you need the money soon, you can apply for a secured personal loan but you will be required to provide collateral like your home or car, or if the lender accepts, your jewelry. The value of the collateral you offer must more or at least equal to the loan amount. In case you fail to pay back your loan, the lender can take over your property and sell it to recover the money that was loaned to you. Because their risk is relatively lesser with secured personal loans, lenders are more inclined to grant you an approval even if your credit score is low. However, in cases where the credit score is extremely low, lenders are bound to deny approval even if collateral is offered. If you are in a similar situation, you must repair your credit first before lenders will grant you a personal loan.
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