What is a ‘BAD CREDIT’?
Bad credit refers to a person’s history of paying off the credit. There are two types of credit score, a bad credit score, and a good credit score. A bad credit score means that an individual is not having a good income and payment history while a good credit score means that an individual is having a good past payment history. People who lend money or creditors usually see the credit score of the person before applying for loans. This is because individuals with a bad credit score have more chances of default and bad debts.
A person’s past credit history depends not only on one factor but on multiple factors such as amount owed, payment made, etc. A person doesn’t have good credit if he does not make timely payments or is a defaulter. Being a defaulter makes it difficult to obtain loans from banks or financial institutions.
On the other hand, good credit makes it easy for a person to get a loan from any institution.
What is better having bad credit or no credit at all?
When this question arises so are multiple answers. Many theories have said that between these having no credit is a better option because you don’t have to prove yourself but some other theories suggest that when a person doesn’t have any credit history, it becomes difficult to obtain loans further. Having no credit history makes it difficult for you to take a car or home loan as this means you haven’t done anything to establish a credit history.
A bad credit score is considered as 580 to 619 whereas a good credit score is considered as 680 to 699. Excellent credit score ranges from 700 to 850 whereas average credit score ranges from 620 to 679.
How to get a loan with bad credit?
- The first step is to know your credit score. If you have a good credit score then you need not worry.
- The next step is to open a bank account. Before opening a bank account you have to make a decision about which bank to choose and which account to open.
- Next is to see if you are qualifying for an unsecured card or not. If you can’t submit the deposit needed for a secured card.
- The most important step is to keep your payment on time.
What is an acceptable credit score?
The acceptable credit score lies from 620-680. This means that there will be no problem if you have a mid-credit score. You will be given a loan easily without any problem.
Ways to get a loan when you have bad credit.
- Using home equity- this means that if you are not able to get a loan because of your credit history and you have enough equity saving in your property, you could get a low interest and tax-deductible credit.
- Getting a peer to peer loan- Commonly known as P2P, this is an online platform to obtain credit. This helps you to borrow from your family or friends instead of an institution. This type of lending is growing its popularity as you can obtain credit on a low-interest rate and without much documents and efforts. In this also, your credit score matters as P2P lenders check your credit score among various applicants and then select the person to whom they wish to give a loan.
- Appeal to co-signer- someone who trusts you and knows your capabilities may be willing to take a chance on you. This occurs when you don’t have any family member or a friend. In case of non-repayment of funds, the lender will look for the person who signed on your behalf and the co-signer would be responsible for the complete payment to the lender.
- Application to credit unions- Another way of getting a loan if you don’t have a good credit score is applying to credit unions. These are the same as banks but are owned by individual members of the bank having some common interest or living in the same geographic area. These are non- profit organizations working for the betterment and welfare of its members at lower fees and higher customer services.