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Gaining access to credit, like a loan or a new credit card, has become more difficult this year. And if you’ve got a credit score that lenders have deemed “bad,” it’s even harder.
Reacting to economic uncertainty, banks have tightened lending standards for households across all major categories in 2020, including mortgage, credit card, auto, and consumer loans, according to Federal Reserve data.
Lenders and creditors use your credit score and the details on your credit report to determine your creditworthiness, or the risk that they might take on by lending you money. If you have a bad credit score, lenders may view you as more risky, making it difficult to earn both loan approval and favorable terms.
For instance, a bad credit score may result in your mortgage lender approving you for a higher-interest loan. But even a small percentage difference could result in you paying thousands more in interest over the lifetime of the loan. And some lenders or credit card issuers may not approve you at all with bad credit, or may charge higher fees to offset their risk.
But bad credit doesn’t stick with you forever, and if you need to borrow money, there are still ways to get approved even with a low score. Here’s what you need to know:
Do You Have Bad Credit?
To determine what you’re eligible for and begin improving your credit score, you should know where you’re starting from. You can view your own credit report — on which the credit score is based — for free on AnnualCreditReport.com. Through April 2021, you are entitled to a free credit report weekly from each of the three main credit bureaus —Equifax, Experian, and TransUnion.
Each lender sets its own standards for assessing credit, and one may judge your score differently from another, but you should have a general idea of where you stand among credit users. You can check your credit score for free through your online banking portal or credit card issuer, or purchase access from a credit bureau.
Credit scores typically range from 300 to 850; FICO rates 300 to 579 as “very poor” and Vantage Score values anything from 300 to 600 as “poor” or “very poor.”
These ranges can greatly influence the amount of interest you pay on a loan. For instance, someone with a FICO Score of 500-589 will pay 16.4% interest on a new five-year auto loan, on average, while someone with a 690-719 score will only pay an average 5.39%. You can use this calculator from FICO to see how interest varies between different credit scores and loan types.
Another thing to keep in mind is you don’t have to have a history of misusing credit to end up with a low credit score. If you’re just starting out with no credit history, your thin credit profile can lead to a poor credit score too, making it difficult to gain access to products that can help you build stronger credit. It takes years of timely payments and healthy credit usage to attain a great credit score.
If you do have bad credit, be cautious about which lenders you turn to: potential scammers and illegitimate lending companies can view a low credit score as a target.
Look out for any company that guarantees you’ll qualify for a loan before even applying or that uses language like “Bad credit? No problem” and “Get money fast,” the Federal Trade Commission warns. These types of lenders could charge large hidden fees or even use your information for identity fraud.
Bad credit can make you an easy target for predatory lenders. Be on the alert for any illegitimate companies or predatory lending offers, which could lead to more credit problems and mounting debt down the road.
By turning to predatory lenders, “You’re going to pay 300-400% APR, and that is devastating,” says Michael Sullivan, personal financial consultant at financial education nonprofit Take Charge America. By contrast, the current average APR (or annual percentage rate, the real yearly cost of your loan) is 14.52% for credit cards, and 9.5% for personal loans.
How to Get a Loan With Bad Credit
Reach Out to Your Current Bank
If you have an established banking relationship with a financial institution, try leveraging that to score a loan, even with bad credit.
“It is critical to have a relationship with a financial institution that will listen to your needs,” says Felicia Lyles, senior vice president of retail operations at Hope Credit Union, a community-development financial institution geared toward typically underserved populations.
This may not be as useful a tactic with large, national banks, but it might at least serve to establish a starting reference point for what rates or products you may qualify for. You can then compare with other financial institutions. Smaller institutions such as credit unions and community banks may be more likely than national chains to work with you on finding a product that fits your needs, especially if the alternative is predatory payday or title loan lenders. Credit unions do have membership requirements, often based on your location, employer, or other criteria, but you may find these criteria easier to meet than you think — or you may find ways around them altogether. Use this locator to find credit unions in your area.
Find a Co-signer
Seek out a trusted person in your life—whether a parent, friend, or family member—who may be willing to co-sign on your behalf to guarantee your loan.
This isn’t a decision someone should make lightly, though. Co-signing on someone else’s loan means that if the borrower defaults, the co-signer is responsible for paying. Not only must the co-signer be prepared to make the loan payments themselves, but they can also become responsible for any late fees or penalties, and their own credit score could be affected.
Co-signing can often be a dangerous financial practice, Jill Schlesinger, CFP, host of the “Jill on Money” podcast warns. “If someone cannot get a loan, usually there’s some reason behind it,” she previously told the Marketplace Morning Report podcast. “If a lender isn’t willing to extend money, why should you?”
If you decide to use this option, discuss all the details of your repayment with your co-signer beforehand, go over the details of your loan agreement, and look into your state’s co-signer rights. Your co-signer should be aware of all the risks involved, be prepared to repay the loan themselves, and make an informed decision about co-signing before applying for the loan.
Peer-to-peer lending is an alternative to traditional loans. Instead of borrowing from a bank or credit union, you can use an online service such as Lending Club to match with investors willing to loan money to borrowers.
Loan terms vary, and you can often receive a lending decision within a short time. Your terms are still determined by your credit history, and you must pass a credit check to take out the loan, but peer-to-peer lending may help you qualify more easily or earn a better interest rate than a traditional bank loan, even with bad credit.
Generally, peer-to-peer lenders report to the credit bureaus, but double check the terms of your lending agreement so you can work on improving your credit score while making timely payments each month.
Payday Alternative Loans
Rather than risk astronomical interest rates and ongoing debt cycles with payday lenders, look into payday alternatives loans (PAL) offered by credit unions.
These small loans range from $200 to $1,000, with terms between one to six months, according to standards from the National Credit Union Administration (NCUA). You will pay high interest, which may even range above 30% (higher than even many credit cards charge) but if you develop a solid debt payoff plan, PALs can be a viable option—and still much more affordable than payday loans.
If you don’t need immediate access to new money, a credit-builder loan can be a great way to build up a healthy payment history—a major factor in determining your credit score.
Instead of receiving cash up front which you pay back over time, you’ll have a set term and loan amount, during which you’ll make monthly installment payments. The lender reports these payments to the credit bureaus. Each month, this money will go into an account, which you can access at the end of your loan’s term.
“What you’re actually doing is paying yourself,” says Cristina Livadary, CFP, of Mana Financial Life Design, a financial planning firm in Marina Del Rey, California. “Then at the end of your term, you get that money back, and you can use it however you want.”
Accessing loans when you have bad credit is definitely an uphill battle, but it’s not impossible to find a lender, even as many tighten lending standards amid the ongoing recession.
If you need access to cash and you have bad credit, take time to examine your overall financial situation: work out a budget you can stick to, organize your debt balances, explore forbearance or hardship assistance, and develop a plan. And given today’s uncertainty, make sure any loan you’re considering is driven by actual need. You don’t want to accumulate more debt for expenses that can wait, like home improvements. Keep in mind your long-term financial health, too: build a small emergency fund if you have no financial safety net, and look into debt payoff strategies that might work best for you.
SEATLLE, Oct. 20, 2020 /PRNewswire/ — Possible raises $11 million in new equity funding to expand the team and to provide additional products for its customers. Union Square Ventures led the round, with participation from existing investors Canvas Ventures, Unlock Venture Partners, Columbia Pacific Advisors, Union Bay Partners, Tom Williams, and FJ Labs. The company has also secured $80 million in new debt financing from Park Cities Advisors.
Furthermore, the company is now fully remote and recently onboarded software engineers from across the US and the globe. Possible is committed to distributed work and actively recruiting for a number of other remote roles.
Possible provides friendly access to capital and a simple way to build credit for people who otherwise would get a payday loan or get hit with a bank overdraft fee. The company uses real-time financial data, rather than a credit score, to qualify customers and provide funds instantly through its iTunes and Android apps. Unlike payday loans or overdraft fees, Possible loans are paid back in small installments over multiple pay periods to allow customers to catch their breath. By reporting on-time payments to the credit bureaus, Possible enables its customers to build credit history and eventually qualify for cheaper, longer term financial products. On average, customers with low credit scores see their scores increase by 70 points within 4 months.
Tony Huang, Possible’s CEO explains, “So many people who live paycheck to paycheck can’t afford to build credit history. We’re helping them do it for the first time while providing them with a friendlier and more affordable small-dollar loan.”
Since launching in June 2018, Possible’s given out loans to hundreds of thousands of customers, helping meet short-term cash needs while building credit history or establishing credit for the first time. These customers, often with bad credit or no credit history, are underserved by traditional banks. Possible fills that gap and provides financial access to those who need it most while giving them the means to climb their way out.
Gillian Munson, Partner at Union Square Ventures, explains the thesis behind their new investment, “Through tech innovation, data-driven insights, and a focus on the customer, Possible is well on its way to winning the hearts and minds of both consumers and regulators alike, and building a trusted brand that endures.”
A 2019 Experian study shows 34.8% of consumers are subprime and can’t access money when they need it. They pay $106 billion in punitive fees each year to the existing financial system for short-term credit products. These consumers are trapped in predatory debt cycles of payday loans and overdraft fees without the means to rebuild their credit or improve their financial health. While there has been a number of new tech-enabled products in this space, most lead to similar debt cycles and don’t address the harder issue of improving long-term financial health. That’s where Possible comes in.
Since the company is now fully remote, Possible is actively hiring talent across the globe. Tyler, Possible’s CTO, explains, “Being fully distributed allows us to access the talent pool of the entire world. Our success so far is a reflection of the quality of our people, and we believe hiring globally will allow us to find exceptional people to join us in achieving our mission.”
Possible is a fintech company based in Seattle, Washington. The company provides a friendlier and easier way for customers to access capital while also building credit history and improving long-term financial health.
About Union Square Ventures
Union Square Ventures is a thesis-driven venture capital firm based in New York City. USV manages over $1 billion in capital across seven funds and focuses investments in portfolio companies with the potential to transform important markets.
About Park Cities Advisors LLC
Park Cities Advisors LLC (“PCA”) is a privately held, SEC-registered alternative credit manager based in Dallas, Texas. PCA is focused on private lending across the specialty finance and FinTech sectors and provides debt capital to companies across a variety of industries through asset-based financing transactions.
Your business needs funding and there’s no denying that! ‘You need money to make money’ and this is most applicable in the business world! While it is fairly easy to start with an awesome idea, to make a business profitable, you need to invest a good chunk of capital.
Whether to buy equipment or hire the right minds, you need capital! And the best way to go about it is to search for the ‘right’ business loan solution. Finding the ‘right’ one amongst the plethora of available options is a tricky decision.
You’ll be under stress to match the repayment frequency. And thus, your business will suffer. Hence, finalizing the right business financing solution after analyzing your business structure, repayment terms, cash-flow, and urgency is the best practice.
Here’s a detailed breakdown of which business financing solution or small business loan will help your business better!
1. For Real Estate – SBA
SBA loan is one of the most popular loans for small business owners. This is pretty straightforward to understand but involves extensive paperwork. If you need a place to kickstart your business, this is most suited for you.
It is issued by a private lending party or a bank. But the interesting part is that this loan can be guaranteed up to 85% by the federal agency—Small Business Administration (SBA). Hence, lending institutions are free and content to give the loan.
The best things about this loan are the lowest down payments and low-interest rates. If you wish to pay in the very long term, you can do so. An SBA loan involves a lot of flexibility. The condition being you should have the right financial service provider to guide you.
2. For An Equipment Or Any One-Off Loan – Equipment Financing, Term Loan
Do you need a new computer, or a tablet for your employee, or maybe a vehicle for your business’ delivery needs? Equipment financing is best suited for such kinds of needs. You can also get up to 100% financing solutions.
But there is one drawback that you should be aware of. As long as the repayments are done on time, you’ll continue to have access to the equipment. But the moment you fail short of your commitment, the lending institution has completed control over ceasing it.
A business term loan is another solution for this kind of requirement. Term loans are based on the ‘term’ that can be anywhere from 1 to 5 years. So, the repayment has to be made in that time-frame. If you’re looking for business loans in Edgewater, NJ, this will be just about right for you!
3. Need To Balance Cash Flow – Business Line of Credit
Business Line of Credit is the best financing solution that can help you with balancing your cash flow or handling any emergencies.
You get access to a limited amount of funds for a set period of time that you need to pay with interest and as soon as you pay it back, your specific balance sheet is turned back to ‘0’. This indicates that you’re again eligible for using that fund.
You can do it repetitively. There is no drawback to this mechanism. So every time you have an emergency fund need, you can look towards the business line of credit.
The only shortcoming of this system is that the interest rate is high and may require collaterals for approval. However, it is one of the most appealing choices if you need capital and have a bad credit score!
4. Credit Card Based Businesses – Merchant Cash Advance
Do you own a business that involves payments via credit cards? If yes, then the merchant cash advance is the right solution for you.
A business like retail or food chain that makes use of credit card transactions the most, can utilize merchant cash advance to boost its business. The way this financing system works is, the lender will enquire about your daily credit card transactions to the terminal provider and get your exact details. Then, he will compare it with the asked amount. If both are in accordance, you’ll become eligible for the advance.
The repayment term is interesting for this financing solution. Instead of getting a fixed rate, the advance provider will give you the figure in percentage. So every day if you make $1000 and the decided percentage is 5, then $50 will be ‘withheld’.
A merchant cash advance acts more like an investment than a loan!
5. Have No Collateral – Invoice Financing, Equipment Financing
Not all businesses have the luxury of putting collateral on the line and getting access to the desired fund. If you fall into the same category, you do not need to worry! Invoice financing can help you out even in this crunch situation.
Your account receivables serve as collateral in this financing solution and can help you get a loan up to 85% of its worth.
The only downside is the interest rate that is marginally higher than the traditional solutions.
Bonus: For A Small Duration – Short Term Loan
What if you need a loan just for 18 months? You have some debt or need to manage the cash flow, but your requirement is small. Which loan is right for you?
Well, you can opt for a short term loan. This loan gives you instant access to a lump sum of money that should be paid within the next 18 months.
The best part about this loan is that bad credit doesn’t bother the process!
This can also support businesses that need temporary loans to manage or settle a few things. Businesses that do not need some loan that lasts for years!
But just like all other financing solutions, this loan as well comes with a few drawbacks.
The first one being the annual cost will be slightly towards the higher side and the second being that a few businesses may find it hard to cope-up with the weekly payments.
A leading financial advisor has shared the saving tricks that will help you to save thousands in a short amount of time, including adopting the 50/30/20 method and never signing up for financial products on your partner’s behalf.
Helen Baker, from Queensland explained that if this year has shown us anything, it’s that you need to have some spare money in the bank in case of loss of income.
Helen revealed the top tips and tricks to help you save tens of thousands of dollars, no matter what your salary or financial goals are.
Helen Baker (pictured), from Queensland, shared the saving tricks that will help you to save thousands in a short amount of time
1. Use the 50/30/20 strategy to control spending
The first way that Helen said you can save a bit more than you already do is by adopting the 50/30/20 strategy to control your spending.
‘This simple yet effective budgeting method involves dividing your after-tax income into three categories,’ she told FEMAIL.
Put 50 per cent of your net income towards ‘must-haves’ like rent, utility bills, school fees and groceries, then reserve 30 per cent for your ‘wants’, like dining out, fashion and entertainment.
Finally, Helen said you need to keep 20 per cent back for loan repayments or building up your savings.
This simple approach will help you to save thousands over the course of a single year.
The first way that Helen said you can save a bit more than you already do is by adopting the 50/30/20 strategy to control your spending (stock image)
2. Consider salary sacrificing to superannuation
Helen’s second tip involves you voluntarily sacrificing some of your salary to your superannuation.
‘If you are looking to save a deposit for your first home, the First Home Super Saver Scheme enables you make voluntary contributions in your super fund and withdraw up to $30,000 of eligible contributions towards your home deposit,’ she said.
Concessional contributions made to an approved super fund are taxed at just 15 per cent, rather than the marginal rate of up to 46.5 per cent on your regular pay.
‘If you have an income of $70,000 and want to put $15,000 towards a home deposit, you can end up paying nearly $4,875 of that $15,000 in tax,’ she said.
By contrast, if you sacrifice $15,000 a year into your super through the First Home Super Save Scheme, you pay just $2,250 in tax per year and could have around $25,000 available for a home deposit after two years.
3. Avoid signing up for products on your partner’s behalf
It might feel tempting to sign up to products on your partner’s behalf as you are a couple, but Helen said it’s best to avoid taking out a credit card, loan or mobile phone plan on your partner’s behalf, in your name.
‘If your partner falls behind on repayments, it can affect both your credit ratings, and if you break up or your partner accumulated debt, and you are married or defacto, you will be liable for their debt,’ she explained.
Avoid rushing into joint bank accounts or co-signing loans, she added.
Even though it’s important to have joint finances and accounts when you’re in a long-term relationship or marriage, you must also have your own savings and emergency fund.
Helen said it’s best to avoid taking out a credit card, loan or mobile phone plan on your partner’s behalf, in your name (stock image)
4. Hide your savings account from yourself
When you set up a savings account, there is always a temptation to dip into it when you need a boost.
But Helen said you should set up a separate bank account for your savings, and ideally one that you can’t access with your current banking app.
‘Choose a savings account that charges withdrawal fees,’ she added – as the harder and more expensive it is to access your account, more likely you are to realise your savings goals.
5. Cut your spending instead of increasing your income
Smart spending can be just as good, if not better, than increasing your income, Helen said.
‘Look at expenses that you can cull, such as a subscription that you rarely use,’ Helen said.
You could also cut dining out as much and look after your existing items so you can use them for a longer period.
6. Create a bill strategy
Helen recommends that you outline all of your bills in a spreadsheet so as to avoid incurring any late fees and pay every bill when it’s due.
‘Ensure your calendar gives you adequate time to thoroughly check invoices and make sure you are not being overcharged,’ she said.
Try to group any bills into categories of $100, $100-$500 and $500 plus.
‘Smaller bills, such as mobile phone plans or other monthly service utilities, can be paid by setting up automatic payments,’ she said.
‘Larger bills, such as tax, rent or mortgage repayments, require more diligence. It is also crucial to pay substantial bills on time to avoid incurring a bad credit rating.’
Helen is a spokesperson for money.com.au. For more information, please click here.