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Best Business Loans for Bad Credit in 2020 (with Easy Qualification) ✅

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All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on TheTokenist.io. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

When the economy takes a dive, businesses take a dive with it. That’s why many companies, especially small family enterprises, take out business loans to stay afloat.

If your business needs extra funding, this is a great time as any to solve that issue with a loan. Interest rates are at an all-time low and some government programs even provide free money for small businesses – although these programs are inefficient and often riddled with scams.

But what happens if you couldn’t get that free federal money, and your bank doesn’t like your credit score? Is that the end? Of course not!

We’re way past the point where we need to rely on banks and the government for funding. Numerous online lenders provide cheap loans quicker than big banks – and more importantly, these alternative lenders do not require high credit scores.

As long as you’re in the 530+ area, you’ll find plenty of offers. In some instances, these lenders don’t even look at credit scores – your business’ performance and cash flow are all that matters. 

So, if you have bad credit and need a loan, you just need to find the right one. This is why we’ve made a list of the best online lenders for companies with low credit scores.

Ready? Let’s see what the top of the online lending industry has on the menu today.

Top Business Loans for Bad Credit


Our pick of the best business loans for low credit:

1. Kabbage
Best Overall
2. Funding Circle
Best for Long Repayment Terms
3. BlueVine
Best for Quick Funding
4. Fundbox
Best for Low Requirements
5. OnDeck
Big Loans with Low Requirements

Best Business Loans for Bad Credit

1. Kabbage – Best Overall

Kabbage Logo

Pros

  • No credit score requirement
  • Near-instant approval for loans under $150,000
  • No APR
  • Loans start at a mere $500

Cons

  • Pricing doesn’t incentivize stretched-out payment
  • At least 1 year of business is required to get approved
  • The longest repayment term is 18 months

If you need quick funding and your low credit has got you in a pickle, you will probably love Kabbage. As one of the biggest online lending platforms, Kabbage has given out more than $6.5 billion in loans ranging from as little as $500 to $250,000.

Even if you have a very low FICO, you still might find a good loan here. This is because Kabbage won’t measure your creditworthiness solely on your credit score. Rather, the company will look at your business’ performance – you will get the money if your company has good cash flow and performance.

Your business must have annual revenue of at least $50,000 and there is no collateral, but you have to guarantee the debt personally. There is no origination fee, which makes these loans more accessible and the payment terms can be anywhere between 6 and 18 months.

There’s no APR for Kabbage’s loans – instead, you need to pay a fee that equals 1.5% – 10% of the amount you owe every month you’re still in debt. This means you pay your principal every month plus the aforementioned fee. This means that the quicker you pay off the debt, the less you have to pay.

If you meet the requirements and your desired loan is under $150,000, it will likely get approved in minutes. However,  debt requests larger than $150,000 are vetted manually and usually take up to one week to go through.  


2. Funding Circle – Best for Long Repayment Terms

Funding Circle Logo Banner

Pros

  • No minimum revenue requirement
  • Longest loan term is 5 years
  • Low interest rates for clients who qualify

Cons

  • Relatively high minimum loan
  • 620 FICO requirement
  • Loan disbursement can take as much as 10 days

Some businesses need big loans and big loans often require long payment terms. Funding Circle provides just that – business loans here range from $25,000 to a whopping $500,000 and the repayment terms can be as long as 5 years.

The requirements here are a bit stricter, though – you need a 620+ credit score and at least 2 years in business to get a loan from Funding Circle. Also, all owners need to sign a lien on company assets and give a personal guarantee that their company will respect the terms of the loan.

There is no minimum company revenue requirement and the lowest APR is very competitive at 4.99%. You will need a higher FICO than 620 to get the lowest APR but whatever loan you get, you will need to wait up to 10 days until your application is approved and the money transferred to your bank account. 

This waiting time is slightly longer than average but it is not the only drawback – clients need to pay a 3.49% – 6.99% origination fee which you can avoid completely with some other lenders. This means you need to pay a percentage of your loan upfront just to get your funds.

All in all, Funding Circle can get you where you need to be if you’re looking for a bit more substantial business loan. The 620 FICO requirement isn’t the lowest but you can have as much as 5 years to pay your loan off and the interest rates at Funding Circle are among the lowest you’ll come across today.


3. BlueVine – Best for Quick Funding

BlueVine Logo

Pros

  • Funding in less than 24 hours
  • Credit requirement is only 530
  • Business only needs to be 3 months old

Cons

  • APRs are not the lowest
  • Inflexible payment terms (6 – 12 months)

Those in need of quick funding need a quick lender – and therein lies BlueVine’s bread and butter. The approvals here usually take up to five minutes, and if everything checks out, you will get money for your company in 24 hours or less. 

BlueVine won’t test your patience and getting approved is pretty easy to boot. The minimum required credit score is 530, but your business needs to be at least 3 months old and have $120,000 or more in annual revenue to qualify. This makes BlueVine better suited for companies that have an established revenue stream rather than brand-new enterprises.

Loans at BlueVine range from $5,000 to $250,000 and APRs can be anywhere between 15% and 78%. Since payment terms are always between 6 and 12 months, paying off BlueVine’s loans is a bit more difficult compared to other loans on this list.

However, the expenses are clean – there are no origination and prepayment fees, so you can get rid of your debt earlier with zero penalties. BlueVine also offers invoice factoring ranging from $5 thousand to $5 million with 1 to 12-week payment terms. 

In summary, BlueVine is super-quick and doesn’t require that much in terms of credit, company age, and revenue – but has an APR that’s a bit higher than other low-credit loans. This is why BlueVine is great for businesses with a healthy cash flow that need funding ASAP.


4. Fundbox – Best for Low Requirements

Fundbox logo Banner

Pros

  • Low minimum credit score of 500
  • Very low requirements all-around
  • Minimum loan is only $1,000
  • Funding only takes a couple of days

Cons

  • Repayment terms up to 24 weeks
  • Maximum loan is only $100,000

You don’t need a huge credit score and company revenue to get a business loan, especially when it comes to Fundbox. Your business must be at least 2 months old and have $50,000 or more in revenue – very accessible compared to most other business loans.

Moreover, Fundbox doesn’t require much in terms of patience. Applications get approved in minutes, and you can usually expect funding within the next couple of days.

The loans at Fundbox range from $1,000 to $100,000, which is limited but great for borrowers who don’t need a huge money injection for their business. The repayment terms are only 12 to 24 weeks but since the maximum loan isn’t huge, making the payments on time is doable.

The APRs for term loans can be between 10% and 78%, based on how healthy your company’s financials look to Fundbox. These rates are not fantastic compared to the top personal loans for bad credit – but considering Fundbox’s low requirements and speed, the 10% APR is a great offer.

If you need speed, competitive interest rates, and easy access then Fundbox might be a perfect catch. On the other hand, you might want to look elsewhere if you want a business loan with long, stretched-out payments.


5. OnDeck – Big Loans with Low Requirements

OnDeck Logo Banner

Pros

  • Low credit score requirement
  • Quick lending
  • Highest loan is $500,000

Cons

  • Origination fee
  • Average interest rates

Your business doesn’t need a huge credit score to get a sizable loan. OnDeck only requires a 600 FICO so you can approach them for a loan as long as your business has been in operation for at least a year and has annual revenue of $100,000 or more.

OnDeck’s term loans range from $5,000 to $500,000 so you’re covered regardless of whether you need a little or a lot. Repayment terms can be anywhere from 3 months to 3 years – which is very handy if you intend to get rid of your debt quickly.

There is no prepayment fee for term loans but you need to start your relationship with OnDeck with a 2.5% to 4% origination fee. On the other hand, opening a line of credit doesn’t incur fees and you can borrow up to $100,000 from your account.

OnDeck approves loan requests within 24 hours and disburses funds in as little as 2 working days. This makes OnDeck very quick, but not quite as cheap as other similar lenders. The APRs range from 11.89% to 51%, which would be fantastic if the competition wasn’t even cheaper.

All in all, OnDeck doesn’t particularly stand out in any specific field but has a strong all-around offer and low credit score requirements. OnDeck has had a solid run as an online small business lender, as it has already satisfied over 100,000 clients with more than $10 billion given out in loans.


What Bad Credit Means

Bad credit means a low credit score. When it comes to business loans, anything in the low 600s and below is considered lower than average, e.g. “bad”. Companies with bad credit will have a harder time getting good, low-interest loans, and sometimes, getting a loan at all.

Bad Credit Score

Having bad credit is especially problematic if you want to borrow from a bank. Traditional banks heavily favor high credit scores and will not consider a low-credit company worthy of loans even if the company’s business performance is excellent. That is why companies and individuals with low credit scores are better off looking for alternative sources of funding.

💻 Want to raise your credit score? You can do so automatically. The top credit repair software can increase your credit with just a few clicks.

How Alternative Lending Works

Banks usually won’t even look at your business if your credit isn’t as high as they think it should be – but there are other lending options and they often come with benefits. The lenders we will mention here are all available online, so you don’t have to go anywhere or wait in a line to speak to a counselor.

Online lenders like the ones in the list above have certain advantages over traditional banks. For one, they are 100% accessible online and can review your loan applications in a matter of days, and sometimes, in a matter of minutes.

Also, due to their fully-digital approach, online lenders can process your information quickly and transfer your funds just a few days after your loan has been approved.

Online lenders are quicker than banks but that’s not their biggest advantage. Some modern lenders don’t rely on credit scores to determine who gets a loan.

Rather, they will inspect your company’s performance and financial history. This means that you can get a good loan as long as your business is in good health – which is how things ought to be.

If you don’t know where to find these online lenders and which one will get you the best deal, you can try a loan aggregator. A loan aggregator is an online marketplace where you can see all loan offers available to you and pick your favorite one. 

These platforms are handy as they will shorten and narrow-down your search for loans dramatically. If you’re looking for a small business loan and have a FICO of 550 or higher, you can take a look at the pros and cons of Fundera – a lending platform that specializes in providing great business loans.

How to Get a Business Loan With Bad Credit

Sure enough, getting a loan is a lot easier with a perfect FICO – but what should you do if your credit is on the low side? Actually, there are quite a few options to choose from if you have got bad credit. Here are a few things you know when looking for loans with low requirements.

1. Check Your Credit Profile

First of all, you need to know what you’re dealing with. You should take a look at your business’ credit report as well as your own. Knowing how to interpret your credit report is something you’ll need to get started.

This will tell you your credit score as well as what you can do to improve it. The 3 big credit bureaus Experian, TransUnion, and Equifax offer free annual credit reports on their websites and checking them out shouldn’t take much time.

2. Limit Your Search

To save yourself a lot of time, it’s good to only look at lenders that are likely to give you a loan. Banks usually don’t look at clients with credit scores below 680 when it comes to business loans, so it’s better to check out online lenders if you’re in the 530 – 680 area.

You can find merchant cash advances for scores above 500 online, but business loans and lines of credit have stricter requirements.

3. Microlenders Deserve Attention Too

Some non-profit lenders only deal in small loans. These loans have very low interest rates if any at all so they are an excellent choice if your business can make use of a small, cheap loan.

4. Cash Flow is the Priority

If you don’t pay your credit bills on time, the missed payments get recorded in your credit report and drive down your score for the years to come. So, before accepting a loan, see if your cash flow is solid enough to make good on your debt every month.

5. Improve Your Credit

If you just can’t find the perfect loan, improving your credit might be the only way forward. To do this you can pay off your debt very responsibly and on time, improving your score over time. But before you take on that long journey, you should remove negative items from your credit report – under the right circumstances, this can improve your credit more than any single action.

6. Check Out Government Loans

The COVID-19 crisis has been bad for our health, but also the wellbeing of our economy. That’s why Uncle Sam has stepped in to help businesses stay with their heads above the water in this unwelcoming environment. The government is offering free small business loans, like PPPs and other types of loans.

How to Get a Business Loan During COVID-19

The government has set up a huge pot of money that it is using to help small businesses and their employees get through these unstable times. PPP loans and EIDL loans have been very popular among business owners lately because they are either cheap or completely free.

That’s right, PPPs are completely free money – as long as you don’t cut your employee count and avoid lowering paychecks by more than 25%. 

Although PPPs are meant for small businesses, big companies were the first in line for the free federal money. Moreover, the big banks and the government haven’t done a perfect job giving out these loans – thousands of companies haven’t gotten PPPs they got approved for. 

This is mostly because traditional banks simply cannot process and approve so many loan requests. If you want to get your hands on a PPP loan quickly, your best bet is to work with a top online loan aggregator. Banks have already done damage to small businesses by delaying loan payments, so an online lending platform is a better choice.

Are PPP Loans Still Available? 

No. PPPs were terminated on August 8th and there have not been any efforts to revive the program yet.

However, there are a few alternative programs small businesses can turn to. These include Federal Disaster Loans, 7(a) SBA Loans, Main Street Lending Program, and Employee Retention Tax Credit.

Types of Small Business Loans for Bad Credit

Banks can be very strict when it comes to giving out business loans. Fortunately, there are many loan types you can get through alternate lenders, even if your FICO isn’t very high. Here are some of them:

  • Term Loans. This is your usual loan – you borrow X amount of money and pay it back with interest over time. These loans can be used to fund your company or eliminate its debt through the process of debt consolidation.
  • Business Credit Cards. A credit card like this is good for two reasons – you can borrow money whenever you need to, and paying your bills on time is great for building your credit score quickly. Business credit cards work the same way as regular credit cards but usually have higher interest rates. That’s why you should only use them for borrowing small amounts you can pay off quickly.
  • Short-Term Loans. These are similar to regular term loans, but they have to be paid back in full in 3 to 24 months. Instead of making monthly payments yourself, your bank will automatically withdraw a fixed amount from your balance every week or month.
  • Short-Term Lines of Credit. You can think of a short-term line of credit as a credit card you intend to use for buying inventory and paying your workers. 
  • Invoice Factoring. You can have a bank (or some other lender) pay your employees’ paychecks so that you can pay back the bank at a later date. Your lender will then take a percentage of your company’s income every month to settle the debt.
  • Equipment Financing Loans. You can take out a loan to buy equipment for your business and use this equipment as collateral for the loan – this collateral keeps the interest relatively low. Equipment dealers offer equipment financing loans but you can also try other online lending platforms.
  • Merchant Cash Advances. You can take out a short-term loan that you will repay by giving your lenders a percentage of your future sales until the debt has been paid in full. Bad credit isn’t a big deal with this type of loan – as long as your company’s performance is good, lenders will see this as a good opportunity and will likely give you a merchant cash advance.

🛠 Did you know: There are a number of credit repair companies you can leverage to repair your credit score. Sky Blue Credit Repair is one of them — and they come with a 90-day money back guarantee.

Small Business Loan Fees and Expenses

Repaying a business loan isn’t as simple as making monthly payments on your principal and interest. There are many other expenses that can unexpectedly creep up on you if you didn’t read the fine print in the contract you signed.

Here are all the terms you need to know to make sense of the pricing of business loans.

  • APR – The annual percentage rate is the interest rate plus all other expenses associated with it. Usually, having great credit means you will get loans with lower APRs.
  • Down payment – Some lenders may require you to deposit up to 25% of the loan amount as a down payment. The better your credit score, the less you’ll need to pay upfront since lenders use credit ratings to determine if you’re a risky client. The downpayment can also be in equity – e.g. your business’ property.
  • Factor rates – Merchant cash advances use factor rates, and not interest rates, to determine how much the borrower needs to pay the lender. For example, if a company takes out a merchant cash advance for $1,000 with a factor rate of 1.3, it will need to pay back its lender $1,300.
  • Origination fee – Some loans incur a processing fee you need to pay upfront – this is called the origination fee. The fee counts towards paying off your total debt, but you need to pay it before you even get funds from your loan.
  • Underwriting fee – Before a lender gives out a loan, they have to pay the underwriters to assess the risk of doing so. Underwriting fees cover this expense.
  • Closing fees – Closing a loan isn’t very straightforward from the bureaucratic perspective. Cutting the red tape will only incur a small fee but it’s worth mentioning either way.
  • Late payment/prepayment fees – Logically enough, if you are late with a payment, that will incur a late payment fee. However, paying before the due date can incur a fee too. These are not the very common, but beware of prepayment fees when you take out a loan.

Bad Credit Business Loan FAQs

What Credit Score Do You Need for a Business Loan?

Most banks and alternative lenders require a credit score of 600 for small business loans. However, there are many online lenders and loan aggregators that only require 550 or even less. In some cases, an online lender might not require a credit score at all – they just look at your company’s performance and give you the loan if your business has good, stable cash flow. 

Can I Get a Loan With a Credit Score of 500?

Banks don’t usually give out business loans to borrowers with credit around 500. Some online lenders offer loans for credit around 500 but the interest rates are always high in that credit score range.

Do Banks Give Loans to Startups?

Yes, but only if the startups can repay them. Banks don’t like risks, so they will ask for collateral of the same value as the loan. The collateral is usually the property of the startup or a personal guarantee from its owners.

What is a 504 Loan Program?

A, SBA 504 loan is a lending program that involves 3 parties – the borrower, who puts in 10% of the loan, as well as a bank and a CDC (Certified Development Company) that finance the remaining 90%. This loan can only be used for buying fixed assets like real estate and the maximum loan amount is $5 million.

What Do Banks Look for When Giving Business Loans?

They look for the 5 “Cs” of credit – character, collateral, capacity, conditions, and character. These will determine if you will get a good deal and if you will get a loan at all.

What Are the Five “Cs” of Credit?

  • Character – First, the bank will look at your credit score and credit history. The higher your score and the longer your history, the better.
  • Capacity – The banks compare your income to your existing debt. They will look at your info to see if you are able to take on a new loan.
  • Collateral – If you have assets that the bank can seize if you default on your loan, it will result in better loan terms.
  • Capital – Same thing – if you have enough cash saved up, the bank will give you a better deal.
  • Conditions – Finally, the bank will ask you what you intend to use the funds for, and your answer will sway their decision. If you want to use the funds for something that will likely be profitable, the bank will like it more.

How Can I Secure a Business Loan Without Collateral?

Most business loans don’t require collateral – just the borrower’s personal guarantee that the debt will be paid off in time. However, putting the company’s assets and cash up as collateral will likely result in better loan terms.

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on TheTokenist.io. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

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Bad Credit

How to get a business credit card with bad personal credit

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Dear Business Banter,

I want to start a business, but I have bad credit. What are my options? – James

Dear James,

Although an impressive credit history and high credit scores aren’t required to start a business, they sure help! After all, you may soon want to borrow funds from a financial institution so you can do everything from pay for the costs of a launch to managing ongoing operations.

To appeal to a lender, your past credit history will be relevant. Thankfully, you can overcome the problems associated with bad credit to qualify for a business credit card—and a loan, since that might be necessary too.

Have a business question for Erica? Drop her a line at the Ask Bankrate Experts page.

Build up your score

Since your business has yet to begin, you don’t have a business credit profile that can help you qualify for credit products. Therefore, lenders will assess your personal creditworthiness to determine qualification and set terms.

To know what is dragging your credit scores down, pull your credit reports up. You can get a report from each of the three credit reporting agencies—Experian, TransUnion and Equifax—once a year for free from annualcreditreport.com.

The information listed in the sections for trade lines, public record, and credit inquiries of your credit report is all inputted into scoring models, so read your reports carefully. If you spot any inaccuracies, file a dispute with one of the credit reporting agencies. The one you use will notify the other two, and your files will be updated.

To improve your scores (even when the negative data is still being listed):

  • Pay all credit accounts on time. Although late payments hurt credit scores (especially when there are many, or accounts are seriously delinquent), establishing a perfect payment history from this point forward will help mend the damage.
  • Reduce credit card debt. If you have credit cards and they’re maxed out, reduce the balance to well below the credit limit.
  • Open up a credit card. Consider opening a personal credit card. Many credit cards are created specifically for people with bad credit. Once you have it, choose a small bill to charge each month, then pay it off in full and on time.
  • Add utility and cell phone accounts to your report. The more on-time payments you have on your credit report, the better. Experian has a free Boost program where you can add non-credit accounts to your file. Those payments should help give your FICO 8 credit score at least a few extra points.

With this strategy, your credit score will increase over time.

See related: Do I need a business credit score to start a business?

Get a business credit card

Although you can use a personal credit card for your business, it’s better to get one specifically for your company. They offer benefits that are designed to help business owners do everything from handle their enterprise’s expenses to helping with accounting.

Just be aware that these cards remain your personal responsibility. Even if it’s in your business’s name, you will be on the hook for all payments and any outstanding debt.

So, how can you get a business credit card with bad personal credit? When your scores are at least in the “good” range, start looking into the business credit card options that are available. As you’ll see, there are many from which to choose, so give this task plenty of time.

Be aware that some business cards are charge cards while others are credit cards. With a charge card, there is no preset limit, but you’ll need to pony up the entire balance within about 30 days. With a credit card, there is a maximum amount you can charge, but you can pay at least the minimum requested payment and then revolve the rest. Ultimately, you may want one of each.

When your scores are at least in the “good” range, start looking into the business credit card options that are available.

Almost all business cards have rewards programs attached to them, so read over the program’s details and focus on those that you’ll use. For example, if you think traveling will be in your future, concentrate on a card that gives you the best perks for flights, airport amenities, hotels and car rentals.

Many business credit cards offer excellent sign-up bonuses, too, where you would receive a large amount of points, cash or miles after spending a certain amount with the card within a few months of activation.

Some also offer 0 percent APRs for a fixed number of months, which will give you a nice amount of time to pay for your venture’s needs before financing fees are assessed. As long as you pay the debt in full before the real rate begins, you get a free loan! As you use the card, you’ll be racking up rewards.

These programs differ, so make sure it’s a good match. One card may offer an exceptional reward value for restaurant meals, while another gives the most for things like office products.

Finally, prepare for annual fees. Not all cards charge them, but if you get more out of the account by way of perks and rewards, you’ll come out ahead. Choose wisely.

Look into loans

Credit and charge cards tend to be great for short-term financing, while business loans are preferable for big-ticket expenses that you want to pay off over several years.

To get a business loan with the best terms, it’s best to wait until your credit is in decent shape. However, if you must borrow a significant amount of money right away and then pay in equal installment payments, there are startup business loans for bad credit.

Loans with no credit checks still pass through an approval process, but the lender analyzes your assets and income for approval instead of your credit history. If it appears that you can make the payments that are associated with the loan, it should be approved. Other lenders do check credit reports and scores, but the standards for qualification are low.

In either case, loans that are developed for people with bad credit tend to be smaller and come with higher interest rates than those for people who have good credit.

Whichever loan you get, simply pay it off according to the agreement. Assuming the lender furnishes information to the credit reporting agencies (most do, but if you get a “no credit check loan,” ask the lender to be sure), it will help your credit scores rise.

Take these simple steps and you’ll not only repair your bad credit but will have the good credit products for your business!

Bottom line

To qualify for a business credit card (and a business loan), take action to improve your personal credit history.

Shape up your FICO score, identify the right business card for your needs and consider a business loan.

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Bad Credit

Home Equity Loan With Bad Credit: Can It Be Done?

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Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

Home equity loans let you turn your equity into cash, which you can use to pay for home improvements, unexpected medical expenses, or any other bills you might be facing.

Generally, lenders require at least a 620 credit score to qualify for a home equity loan. If your score isn’t quite there yet, though, you still have options.

Here’s how you may be able to get a home equity loan with bad credit:

  1. Check your credit and try to improve it
  2. Find out your debt-to-income ratio
  3. Find out how much equity you have
  4. Think about bringing on a cosigner
  5. Shop around for the best rates
  6. Consider alternatives to bad credit home equity loans

1. Check your credit and try to improve it

To start, head to AnnualCreditReport.com and pull your credit. You get one free report from all three credit bureaus per year.

Once you have your credit report, check it for errors and evidence of identity theft, such as accounts you don’t recognize and credit cards that aren’t yours. Reporting these to the credit bureau can help improve your score. So can taking these steps:

  • Pay all your bills on time: Payment history — or your track record of payments — accounts for 35% of your score, so make it a point to pay all of your bills on time, every time.
  • Pay down your debts: Lenders want to see a credit utilization rate of 30% or less — meaning your balances account for 30% or less than your total available credit.
  • Keep credit cards open: How long your accounts have been open impacts 15% of your credit score, so avoid closing accounts — even once you’ve paid them off.
  • Avoid applying for new cards: This will result in hard credit inquiries, which can hurt your score.

Learn More: How Your Credit Score Impacts Mortgage Rates

2. Find out your debt-to-income ratio

Lenders will also consider your debt-to-income ratio (DTI) when you apply for a home equity loan. This indicates how much of your monthly income goes toward paying off debt.

How to calculate DTI: Add up your monthly bills and loan/credit card payments, and divide the total by your monthly income. Multiply that amount by 100.

For example, if you have $2,000 in debt payments and make $6,000 per month, your DTI would be 33% ($2,000 / $6,000 x 100).

Most lenders want a DTI of 43% or lower. A low DTI can help improve your chances of getting a loan, especially if you have a lower credit score, since it indicates less risk for the borrower.

3. Find out how much equity you have

How much equity you have in your home, as well as your loan-to-value ratio, will determine whether you qualify for a home equity loan — and how much you can borrow. To find out yours, you’ll need to get an appraisal, which is a professional evaluation of your home’s value. The national average cost of a home appraisal is $400, according to home remodeling site Fixr.

Once the appraisal is finished, you can calculate your loan-to-value ratio by dividing your outstanding mortgage loan balance by your home’s value.

For example: If you have $100,000 remaining on your home, and the appraisal determines it’s worth $200,000, then you have an LTV of 50% ($100,000 / $200,000). This also means you have 50% equity in the home.

Most lenders will only allow you to have a combined LTV of 85% — meaning your existing loan, plus your new home equity loan can’t equal more than 85% of your home’s value.

In this example, you’d be able to borrow $170,000 (85% of $200,000) across both your initial mortgage loan and your new home equity loan. Since your existing loan still has $100,000 on it, that’d mean you could take out a home equity loan of up to $70,000.

4. Think about bringing on a cosigner

Bringing in a family member or friend with excellent credit to cosign your bad credit loan can help your case, too. If you do go this route, make sure they understand what it means for their finances. Though you may not intend for them to make payments, they’re just as responsible for the loan as you.

Tip: If you fail to repay the loan as agreed, it could hurt the other individual’s credit score or result in collections against both of you. Make sure you’re upfront and transparent about what cosigning your loan may mean for them.

5. Shop around for the best rates

A lower credit score will typically mean a higher interest rate, so it’s incredibly important you shop around and compare your options before moving forward. Get rate quotes from at least three to five lenders, and make sure to compare each loan estimate line by line, as fees and closing costs can vary, too.

Credible makes comparing rates easy. While Credible doesn’t offer rates for home equity loans, you can get quotes for a cash-out refinance — another strategy for tapping your home equity. Get prequalified in just three minutes.

Get the cash you need and the rate you deserve

  • Compare lenders
  • Get cash out to pay off high-interest debt
  • Prequalify in just 3 minutes

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6. Consider alternatives to bad credit home equity loans

A bad credit score can make it hard to get a home equity loan — especially one with a low interest rate. If you’re finding it difficult to qualify for an affordable one, you might consider one of these alternatives:

Cash-out refinance

Cash-out refinances replace your existing mortgage loan with a new, higher balance one. You then get the difference between the two balances in cash.

Find Out: Credit Score Needed to Refinance Your Home

Personal loans

Personal loans offer fast funding, and you don’t need collateral either. Rates can be a bit higher than on home equity loans and refinances, though, so it’s even more important to shop around. A tool like Credible can help here.

Check Out: Home Equity Loan or Personal Loan: How to Choose the Best Option

Compare multiple lenders

If you have bad credit, there are still ways to tap your home equity or borrow cash if you need it. Head to Credible to see what personal loan options and mortgage refinance rates you might qualify for. With Credible, you can easily compare prequalified rates from all of our partner lenders without leaving our platform.

About the author

Aly J. Yale

Aly J. Yale

Aly J. Yale is a mortgage and real estate authority and a contributor to Credible. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.

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Bad Credit

A Look Back At Housing 2020: Rental Housing Gets Riskier

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According to the American Housing Survey cited in a recent article, there are about 48 million rental housing units in the United States ranging from single-family homes to large multifamily apartment complexes. Of those 48 million units about 23 million are owned by individuals, according to a recent Rental Housing Finance Survey; that’s more than half of the occupied units in the country. Yet private rental housing providers have been under relentless attack in recent years increasing risks and costs. This has worsened in 2020 as I have pointed out. More risk means fewer housing units and higher prices, not a good outlook for the future.

Any business based on renting assets is based on risk. Think about the last time you went bowling. When you rent the shoes, the person behind the counter often will hold a driver’s license? Why? It’s a way of offsetting the risk that you’ll go home with the shoes either on purpose or accidentally. Nobody wants to deal with a lost driver’s license. Offsetting this risk has absolutely nothing to do with you or your trustworthiness; it is uniformly applied and routine.

Housing providers have to similarly offset the risk of allowing a stranger occupy their private property. There are several ways of doing this, including using credit checks. But lately, politicians are beginning to eliminate the credit check from the tools that housing providers can use to offset risk. Minneapolis for example has eliminated credit checks arguing that they are a “barrier” to housing.

Is race a factor in bad credit and thus a barrier to people of color to get housing? The fact is, yes, African American people have more credit issues. But would eliminating credit checks help them? The answer is, “No.”

An article in the Washington Post, “Credit scores are supposed to be race-neutral. That’s impossible,” is emblematic of how this issue plays among the public and policy makers. The author says two contradictory things. First,

“This would lead one to think that credit-score calculations can’t be biased. But factors that are included or excluded in the algorithms used to create a credit score can have the same effect as lending decisions made by prejudiced White loan officers.”

Then she writes,

“One quick way to impact your credit history is a court-ordered judgment. And Black borrowers are more likely to fare badly when taken to court by their creditors. Debt-collection lawsuits that end in default judgments also disproportionately go against Blacks, according to a 2020 Pew Charitable Trusts report.”

Logically, the right way to state this is that credit measures are biased against people who have default judgments against them, and African Americans have higher rates of defaults. Then the next question would be, “Why?” The most obvious answer is the right one, poverty is disproportionately concentrated among people of color.

But eliminating credit checks for housing won’t help that problem. If a housing provider is unable to evaluate risk based on past financial performance her only option will be to raise rents and deposit amounts in case there is a problem; that extra cash would provide a buffer if a resident stops paying rent. This won’t help anyone with less money. What’s the response to that? Ban rent increases by imposing rent control! That’s a bad idea too and won’t help either.

The answer is to figure out how people who have less money and therefore have more issues making ends meet can solve that problem and improve their credit scores. The author of the Washington Post article makes a sensible suggestion: include steady rent payments in credit scores. Some housing providers do, and it’s a great idea. But it is a positive one that actually helps the family; banning quantitative measures of past financial performance doesn’t.

The danger that unfolded in 2020 is that justifiable outrage about racism could lead to interventions that don’t address poverty and it’s negative consequences like default judgments but elimination of accepted measures of those consequences. Eliminating the evidence of poverty – struggling to pay bills – doesn’t help pay the bills! At best, these kinds of measures sweep the problem under the rug ensuring higher rents and making housing a risky business only big corporations will be able to do.

The answer is to address the broader underlying issues of poverty and increasing housing production. When there is more supply of housing providers compete with providers for residents and will be forced to bargain with potential residents, even those with dings or dents or completely destroyed credit. Housing abundance solves a housing problem while eliminating measure of risk only makes that risk higher and actually creates a housing problem.

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