Credit scores and reports can be confusing. Many people try to avoid thinking about them as much as possible. Unfortunately, you can end up struggling to get a loan if you don’t keep an eye on your credit.
You might even struggle to get a personal loan with a low credit score.
What Is Considered a Low or Bad Credit Score?
Credit scores are calculated on a scale that ranges from 300 to 850 — and the higher the better. When you have a high credit score, lenders will see you as likely to pay them back if they loan you money.
The opposite is true if you have a lower score.
There’s some nuance to how different lenders and credit reporting agencies view different aspects of your credit score and borrowing history. As a general rule, however, a score under 600 is typically considered low. When you fall into this range — no matter the reason — you’re going to have a tougher time opening lines of credit.
Why is it important to have a strong credit score?
Your credit score doesn’t play a super critical role in most areas of your life. But it’s paramount in the financial realm. A lower credit score means you’re going to have to deal with less attractive loan terms when you borrow money. Lenders will only give you access to debt if you’re willing to pay more in interest, which in turn makes the loan more difficult to repay.
This is true for pretty much all types of loans. When you have a lower score, you’re going to get worse terms. In some cases, you might not be able to get a loan at all.
What to Do If You Need a Personal Loan with Bad Credit
Improving your credit score is a process. It can take years to restore your score if you have a bad one. But life doesn’t always wait. Sometimes you need money right now. If you’re in this situation, you might want to investigate online lenders. Credit unions are also sometimes more lenient than traditional financial institutions. Avoid credit card advances and payday loans unless you have absolutely no other option. These types of debt come with unattractive terms and can quickly spiral out of control —leaving you in a worse position.
People with several outstanding lines of credit can consider a debt consolidation loan for bad credit. Debt consolidation can be an effective approach for those struggling to restructure what they owe into a more reasonable package. You could also work with a reputable company such as Freedom Debt Relief, who could negotiate down debts directly with your creditors. This can be a great way for people with poor credit to get their lives back on track.
Improving Your Credit Score
As already mentioned, a debt consolidation loan is one way to improve your credit score over time. These are a few other ways to get your credit score in-line:
- Pay bills in-full and on-time to the best of your ability
- Reduce the amount of debt you carry. Your credit utilization (amount of debt you have versus how much you’re allotted) is a major factor in determining your credit score
- Ensure there are no mistakes on your credit report, including cases of fraud
Seeking a personal loan can be tough when you have a low credit score. Fortunately, there are options out there for people, both for the near- and long-term.