Your credit score is the major benchmark that lenders use to determine your credit worthiness and what kind of terms they will offer you. The higher your credit score, the easier it will be to secure a loan and the better the terms – especially the interest rate. You have the right by law to get a free official credit report once a year from the major credit reporting agencies. Before even shopping for a loan, obtain your credit reports and check them for accuracy. If you find mistakes on them (and that does happen) you can demand that they be corrected – and that will improve your credit score.
Lenders also look at other factors, especially your job and salary history. If possible, try to increase your salary or job status before applying for loans. Lenders also look at stability, such as length of residence. If you are going to move soon and have lived at your current residence for a while, it is better to apply before you move.
If possible, try to bring all your credit payment accounts as current as possible before you apply for a new loan. This includes not only housing, car loan and credit card payments, but also all your periodic bills including your phone, utility, cable and other similar bills. Also, if you can, pay off some outstanding debts and if you have a lot of credit cards, cancel the ones you really don’t need to have. All of these things will increase your credit score.
There are “sharks” out there that take advantage of people with poor credit – aptly enough they are called predatory lenders. The most infamous of these are so-called “payday lenders”. Yes, they make it fast and easy to get a loan – but they will charge outrageous interest and fees. Also be wary of lenders who aggressively come after you with “easy” loan offers. Instead, first turn to any credit union or bank you have a current relationship with. There are also many legitimate online lenders, even for people with poor credit, just carefully check them out first on the various online personal finance sites.
Check to see if any of your credit cards have the option to take a cash advance – where you receive money instead of paying for a purchase. While these cash advances are not the cheapest type of loan, they are easy and very fast and legitimate. Just make sure you will be able to make the required timely payments and that you can do without the credit line that is reduced due to taking the cash advance.
Look for legitimate lenders that will offer to pre-qualify you with what’s called a “soft credit check”. This type of credit check will not adversely affect your credit score – whereas a full “hard” credit check actually will lower your credit score at least temporarily. If you formally apply for loans, each such application will lower your credit score and can result in you not getting approved by anyone. Once you have secured such pre-qualification offers, only formally apply for one or two of the best offers.
– Co-Signer: If you have a friend or family member who is willing to co-sign the loan with you, this will not only increase the chances of approval, but
should result in more favorable terms.
– Secured Loan: By providing the lender with collateral, such as your car, home, stocks and other assets, you again will have an easier time in getting
approved and should get better terms. However, you risk your asset if you default on this loan and should be very cautious about taking this option –
especially a loan against your home.
– Life Insurance and Pension Fund Loans: If you have cash value life insurance or a vested pension account, you may be able to borrow against these
accounts even with poor credit. However, carefully check the terms and consequences of such loans in advance.
Before you accept and sign for any loan, you should fully know what is involved with the particular loan. Some very important things to know:
– Exactly What Is the Annual Rate of Interest
– Payment Due Date, Grace Period and Late Fees
– Any upfront Loan Application Fees
– Is the Interest Rate Fixed or Variable
– Is there a balloon payment
– Can you pay off the loan early without a penalty fee