Having bad credit means getting approved for any type of financing will be difficult, especially if you need an unsecured personal loan.

Prior to 2008, getting financing even with bad credit was simple.   The banks WANTED to lend as much money as possible.  But when the economy took a hit and so many people went into foreclosure, many banks “tightened” up their credit requirements.

Getting a personal loan became possible only for those with excellent credit or people with co-signers with excellent credit.   But in 2015 I started noticing a change in the market.   New lenders appeared that were willing to make bad credit personal loans.

Yes, bad credit loans do exist in the market, but they come at a price.  Now many of the lenders want to protect themselves from the high default rate they experienced before.  The new bad credit personal loans came with higher fees, higher interest rates, shorter repayment terms and smaller loan amounts.  But there is something you can do….

Before applying: Give your credit score a quick boost

Yes, bad credit loans don’t require a good credit score.  But you want to get the best rate possible right?  If you have the time before you need to get the loan.  Fix any problems that maybe there.   There is nothing worse than working with a client and getting them approved for a bad credit loan, but seeing on their credit report that they could have qualified for a better rate with just a little planning.

Things that will give your credit score a quick “boost”

• Pay down current credit cards, get your utilization to under 30% and your credit score will go up!  When you are using a lot of credit, your score will go down.  Credit card debt is one of the biggest reasons why people file for bankruptcy.   By getting your limit under 30% you aren’t in a “high risk” bracket.
• If you can’t pay down your credit card debt you can call your credit card companies and get them to raise your credit limit.  The goal is that you will be under 30% utilization.  So if you have 4 credit cards and each has a $10,000 limit.  You want to be under 30% of the $40,000 available credit.   So you want to be using less than $12,000 total.
• Wait 30 – 45 days and check your credit score.  By that time all your credit cards should reflect the new balances or the increased credit limits.

How to use bad credit loans to repair your credit

While you are working on fixing what you can on your credit report.  You want to start to build new credit.  That’s where bad credit loans can help!

You have to understand that there is no such thing as “instant credit repair”  Depending on how damaged your credit is, you may have a long hard road ahead.   But you can help the process by starting to build new, good, trade lines.   And a personal loan can do that for you.

1. First, choose the bad credit lender you want to work with.  We have a list of them here
2. Make sure that lender reports to at least 1 credit reporting agency
3. Get approved for the loan and set it up for automatic payment.  No one means to miss a payment.  It just happens.  By setting up automatic payment will make sure this never happens to you.
4. Since bad credit personal loans tend to have a higher interest rate, choose a short term one.  But you want to ideally have a 36 month term.  This will really show lenders that you are now financially sound and will not be missing payments anymore.
5. Get a bad credit credit card.  They come in 3 types – secured, unsecured and merchandise.  You want to have a diverse credit report.  The bad credit loan is just 1 of the accounts you should open.
6. Every few months you should call your creditors and look into getting a credit limit increase.  Having a bunch of $300 credit cards doesn’t help your credit that much.  But if every few months you ask for a credit limit increase, you will show prospective lenders that people who are currently working with you, trust you enough to take on bigger credit limits.

The Path To Credit Recovery

You may need to allow at least six months of working on your credit score before you start seeing major improvements.  A big part of improving your credit score will be to remove the negative information.  You can do this thru disputing the inaccurate information or negotiating with your creditors.  But the often neglected aspect of credit repair is the rebuilding of your credit profile.   Spend just as much time looking for ways to add new tradelines to your credit report as you do in removing the negative information.  Some quick credit score boosters are:

• Becoming an authorized signer on a friend or family members account.  Their good credit becomes yours.  Some people will feel that it’s too risky.  But you can tell them you will never ask for a card so you will never use it.
•  Have someone co-sign on a loan or credit card for you.  Again this will allow you to use their good credit to obtain financing.  You will qualify for a better personal loan at a better interest rate. But its risky for the co-signer.  If you don’t make the payments, it will negatively impact their credit score.

Updated 11/24/2017 Liz Roberts