While having bad credit can be a roadblock when applying for a loan from a traditional lender, the good news is that there are alternative options. Laura covers six ways to get a loan even if your credit is less than perfect.
If your credit is in bad shape or you’re just starting to build credit from scratch, you might feel shut out of opportunities to borrow money. While having bad credit can be a roadblock when applying for a loan from a traditional lender, the good news is that there are alternative options.
In this article I’ll cover 6 ways to get a loan when your credit is less than perfect.
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How to Check your Credit Report
If you live in the U.S. before applying for a loan, I recommend that you take some time to review each of your credit reports with the three nationwide credit bureaus: Equifax, Experian, and TransUnion.
Federal law requires each of the bureaus to give you a free credit report every 12 months if you request it. You can get your reports from the individual bureaus or access all of them at annualcreditreport.com.
Any inaccurate information—such as late payments, accounts you don’t recognize, or open balances that were previously paid off—could be dragging down your credit scores without you knowing it. Lower credit scores typically cause you to pay higher interest rates on credit cards and loans, so cleaning up your credit file can really pay off.
If you have old debt in collections, consider negotiating a settlement with your creditors. Arranging a payment agreement today won’t remove the bad debt from your report tomorrow, but it helps clean up your report.
Remember that credit accounts remain on your credit history for many years after you pay them off. Debts with positive payment history stay in your credit file for 10 years and those with negative information stick around for 7 years. So even after you settle or pay off a bad debt, it always remains on your credit history for 7 years after the date you originally became delinquent.
6 Options to Get a Loan with Bad Credit
No matter if you’ve already been turned down for a loan or you just like the idea of using a non-traditional lender, here are 6 options to get a loan when you don’t have excellent credit:
Option #1: Apply for a loan at a credit union
Since the purpose of a credit union is to serve its members, they’re known for offering top-notch customer service and can be more flexible and forgiving of consumers who have less than perfect credit.
Credit unions are similar to banks; however, they aren’t legally allowed to serve the general public like banks do, so you have to be a member.
Different credit unions have different membership requirements, such as working for a certain employer, in a particular industry, or living in a certain city or county. However, in some cases joining can be as simple as making a one-time $10 donation to a charity that the credit union supports. Also, most credit unions extend eligibility to the immediate family of all their members.
Since the purpose of a credit union is to serve its members, they’re known for offering top-notch customer service and can be more flexible and forgiving of consumers who have less than perfect credit. Additionally, they generally offer competitive interest rates that can save you money.
You can search for local and national credit unions at:
See also: Bank or Credit Union—Which is Better?
Option #2: Use alternative lenders
Traditional brick-and-mortar banks tend to have stringent underwriting guidelines for loans. However, there are many alternative companies that offer loans even if you have average or poor credit.
Check out these online lenders:
- SoFi – uses a modern, radical approach to lending that evaluates applicants based on a holistic view of their financial well-being rather than on their credit score. They offer student loan refinancing, personal loans, and mortgages based on factors such as your career experience, income versus expenses, financial history, and education.
- Avant – looks at a variety of factors when determining your eligibility for a personal loan. Checking your rate results in a soft credit inquiry, which doesn’t hurt your credit.
- LendingTree - is an online lending exchange that connects borrowers with multiple lenders, banks, and credit partners who compete for your business, even if you have bad credit.
Some lenders allow you to get rate quotes with a soft inquiry to your credit report that doesn’t affect your credit—but many do a hard inquiry that will temporarily ding your scores.