Having a bad credit history many people abandon further attempts to receive a loan thinking it’s impossible. But as practice shows you can get a loan even with a bad history. A trick is to perform several clever steps and launch a process of rebuilding your credit. Below we will describe some smart methods that are going to help you on this way and make some uncertain moments clear.
Trick № 1: Get an Understanding of Loans
1. You must understand in which way a secured loan differs from an unsecured one. A secured loan has a certain kind of your personal asset as a collateral. It may be an automobile or any other vehicle or a real estate. An unsecured loan has no asset that guarantees the return of money. That’s why the higher risk level for lender results in higher interest rates for the borrower. Unsecured loans are also reffered to personal loans and are mainly used either to finance the house renovation as well as unsubstantial purchases or cover unexpected expenditures.
Considering the loan try to understand the terms clearly. Some loans have a fixed interest rate along with a well-defined payment period. Others, on the contrary, imply a revolving credit line and offer interest rates that change.
Try to specify tax-time savings. You have an opportunity to deduct the interest on secured loans like student loans or mortgages. Remember, the interest on unsecured loans isn’t tax deductible.
2. Consider payday loans. They are loans of a small amount and short period and may support you when you ran out of cash. To receive a payday loan you have to fill in the check for the desired sum that includes a fee and give it to the lender who receives the cash back when you have money to repay the check. If you are still low on cash and cannot provide a timely repay try a rollover pattern but get ready to increased fees. Financial institutions as well as private storefront operations charge an interest rate of 500% and even more for a payday loan. Center for Responsible Lending informs that payday loans enjoy interest rates from 225% to 300% on average.
Study the legislation of your state concerning payday loans. They are forbidden in 15 states and the federal government does not approve them too.
Turn to credit card borrowings as a last measure. The reason is simple – they are expensive with interest rates coming up to 40%.
Maxing out a credit card is a bad idea. Given high interest rates it doesn’t matter that you pay a lowest possible minimum every month. Summing up you still pay substantially more.
Try to receive a loan in a financial establishment with a good reputation. Having a bad credit it’s not easy at all to find such one, but nevertheless it’s worth trying.
Calculate carefully the amount of loan you can afford. The very fact the lender is ready to give you a loan is nothing if you can’t afford it. The bank will examine your every bill and conclude whether you are able to return money or not. Meanwhile, secondary lenders usually omit this calculation since their main task is to get a loan for you. So you are the only one who makes the ultimate decision about the loan’s affordability.
3. Get ready to face increased interest rates. The peculiarities of your credit status empower the lender to assign not only higher interest rates but higher fees and reduced loan limits as well. Your bad credit contributes to the interest rate of several percentage points higher.
Trick № 2: Select Your Own Loan
1. Arrange a student loan. Your college education can be financed in a variety of ways. Bad credit is not an impenetrable barrier on a way to the student loan. A great deal of students has a very poor credit history or none at all but still receive loans. And you are no exception.
Consider government loans. Student loans patterns provided by the government don’t take credit history into account. For instance, a filled Free Application for Federal Student Aid will tell you whether you are a suitable candidate for Perkins or Stafford loans not verifying your previous credits.
Reinforce your bad credit with a co-signer. If you manage to convince any adult person, say, one of your relatives or a family friend, to co-sign the borrowing agreement you may succeed in getting the desired loan. The co-signer will be responsible for your debt in case you are not able to repay it in good time.
Examine "peer-to-peer” scheme. Specialized Internet websites facilitate the process of matching students searching for a loan and investors ready to offer such service. The negotiations on the amount and terms of payment are made anonymously and it frequently turns out the general terms are far more attractive than those of the bank. Playing this game you accept the risk of not being sure how safe is the loan from a person you are not familiar with.
Try to borrow money from relatives or a friend. The probability to find a close person who trusts you and agrees to lend you money is very high in this case. You have a fine chance to negotiate a lower interest rate or suitable payment period. Keeping in mind a proverb “If you want to lose a friend lend him money”, don’t hesitate to prepare an agreement specifying the terms you both have agreed on.
2. Arrange an automobile loan. The car loan features a short term and it already is a collateral. So bad credit is not a very important argument since in case of your insolvency the car can be easily repossessed.
Look for the lowest annual percentage rate for the shortest term. The extended loan period is attractive option because the volume of monthly payments reduces although in the long term you pay a higher interest rate.
Search for uncommon things in your lending contract. Many of them contain clauses that oblige the borrower to buy additional products like insurance policies or extended warranties which ultimately makes the credit more expensive. Avoid them in your new credit agreement and reject the contract if they are offered.
Before putting your signature make sure the dealer financing is final. Some wiseheads prepare conditional contracts making it possible to raise the down payment or the monthly payment. This scheme is known as "yo-yo" technique and borrowers with bad credits are suitable candidates for its application.
3. Access a loan for a small business. Such loans are provided by the financial establishments close to the Small Business Administration.
The most important thing when dealing with banks is the ability to show them not only previous profits but also present a reasonable plan of receiving earnings in the future. Either you manage to convince the bank clerks your business will shortly generate sufficient income to repay the loan or you won’t get the loan at all.
Don’t apply for big loans. Try to start from asking for small loans to raise the chance of concluding a credit agreement.
Trick № 3: Arrange a Meeting with a Potential Lender
1. Think about the proper presentation of your credit needs. Before arranging a meeting with the lender collect all necessary documents and other information you may need during the conversation.
Compose a loan application or a loan application letter. The first document contains the most important data about you like income size, social security number, expenses and savings. Prepare an informative application but without unnecessary details. You’ll have an occasion to discuss them later in person if the need be. A clerk should read your document with no efforts, otherwise he may simply save his time throwing the paper to the trash can. Sometimes a loan application letter is required to explain the reasons you need the loan, the ways of using and repaying it.
Have a correct and ready documentation. Make copies of all important financial documents to support evidence you provided the lender with in your loan application. Don’t hesitate to take the following papers with you: employment and housing history for the period of the last two years, W-2 forms and income tax forms for the last two years, full information about all bank accounts, any considerable loans and credit card indebtedness.
2. Get ready to receive a refusal during the first meeting. Having a poor credit history means you should be more persistent in your attempts to get the loan. You may encounter hundreds of refusals until you find a single lender who agrees to give you a loan. The main rule here is to try over and over again no matter how hard it is to start anew.
Abide by the plan. Compose a list of up to 15 potential lenders in your location and send the application to each of them. Receiving a refusal from one company start consider the following position on the list. Having a number of unused opportunities will help you not to get desperate too soon.
Insist on response and explanations. Having an application unsatisfied feel free to ask for the reasons of rejections. Once you obtain the needed information you can correct your mistakes and avoid the similar failures dealing with the other lenders.
Trick № 4: Rebuild a Credit
1. Receive a secured credit card. This type of cards is useful because you can develop and maintain a stable history of repayments. You provide a card with a defined sum of money called security deposit that acts as a spending limit. Once you return this sum to your card it is possible to use it again within the spending limit.
Be careful considering rates and fees. Secured credit cards feature two main indicators: interest rate and annual fee. Compare several options and terms and choose the most suitable one.
Investigate "hybrid" cards. This type is a mix of a regular credit card and a secured one. Commonly offered for higher interest rates they allow you to withdraw amounts that surpass the established credit limit.
2. Do your best to pay in time. The history of payments accounts for about 35% of a total credit score, so it’s a very important indicator. A good payment history creates necessary prerequisites to apply for a wide range of unsecured cards.
3. Find a good credit advisor. The job of the credit counselor is to assist you in a number of activities connected with arrangement of the loan. To be precise they help conduct talks with potential lenders, evaluate your budget, develop a repayment strategy and do many other things depending on what you need in each particular case. Having a qualified specialist settling all problematic moments is a great advantage that helps you remain confident in the successful end of the story.
Look for an advisor with a checked reputation. A good credit advisor has a license to perform activities in finance or in a field connected with money.
Approach debt consolidation offers with caution. In many cases debt consolidation is a fine option but bear in mind two crucial points. If debt consolidation experts demand to pay a fee in advance or insist on you paying to them rather than to your direct lenders, look for another agency right now, otherwise you may find yourself in another trouble.