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Personal Loans for Bad Credit

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Personal loans can be used for everything from debt consolidation to major life expenses. 

The best rates and terms will only be available to people with the best credit, especially in a year that’s seen lenders tighten lending standards and requirements across the board. So if your credit score is on the lower end, it’ll be more difficult to qualify for the best rates, if you qualify at all. 

Still, it isn’t impossible to qualify for a personal loan if you don’t have a great credit score.

Many lenders still offer personal loans to people with “fair” or “poor” credit — and some even specialize in offering loans and other financial products to those types of customers. But if you have debt, bad credit, or both, and you’re thinking about a personal loan, you should consider whether or not taking on new debt makes sense. 

You might be better off considering alternatives like credit cards with promotional rates or even a home equity line of credit (HELOC) if you own a home. Consider what it takes to make long-term financial improvements as well, such as rebuilding your credit or starting a debt management plan.

If you think a personal loan is your best option despite having a lower credit score, here’s what you should know:

Best Bad-Credit Loan Rates in December 2020

InstitutionMin. Credit ScoreCurrent APRLoan Term RangeMin. Loan Amt.Max Loan Amt.
Payoff6405.99% to 24.99%2 to 5 years$5,000$40,000
Best Egg6405.99% to 29.99%3 to 5 years$2,000$35,000
Upstart5808.41% to 35.99%3 to 5 years$1,000$50,000
Rocket Loans5407.161% to 29.99%3 to 5 years$2,000$45,000
Prosper6407.95% to 35.99%3 to 5 years$2,000$40,000
Upgrade6207.99% to 35.97%3 to 5 years$1,000$50,000
Avant5809.95% to 35.99%2 to 5 years$2,000$35,000
LendingPoint5909.99% to 35.99%2 to 5 years$2,000$25,000
LendingClub60010.68% to 35.89%3 to 5 years$1,000$40,000
*All information current as of Dec. 22, 2020.

How we chose these lenders

This list does not represent the entire market. To rank the personal loan rates you’re most likely considering, we began by analyzing the 16 most commonly reviewed and searched-for personal loans that met NextAdvisor’s standards, as outlined in our Personal Loan Rates Guide. Each lender had to meet the following criteria to appear in this review:

We eliminated lenders that make it difficult to find the above essential loan information on their websites without entering an email or other personal information. Many lenders prominently display this information on their sites, making it easy to compare to other lenders. If you’re in the market for a personal loan, we recommend a lender that’s transparent with its rates and approval requirements, and doesn’t require personal information for a rate comparison.

We ruled out any lenders whose max APR exceeds 40%, which is well above the average APR you can find even if you have bad credit. A high APR will result in you paying more over the course of the loan.

Our list features only direct lenders, rather than intermediaries or loan marketplaces. We also ruled out credit unions, which have unique membership requirements and limit the number of people who could easily consider them for a loan. Credit unions can offer competitive rates to those who qualify; check your local area or use a credit union locator to compare rates.

None of these banks charge any fees or penalties for early payments or otherwise paying off your loan early. We don’t think you should ever have to pay a fee to get out of debt faster, so will never recommend a personal loan that includes such a fee or penalty.

Each lender has a minimum FICO credit score that includes people in the “fair” credit score range, which includes scores between 580-669.

The above rates and loan information is accurate as of Dec. 22, 2020. The NextAdvisor editorial team updates this information regularly, though it is possible APRs and other information has changed since it was last updated. Some of the lowest advertised rates might be for secured loans, which require collateral such as your home, car, or other asset. Also, some loan offerings may be specific to where you live.

Lender Overview

Avant

Overview: Avant is an online lender that serves customers with fair-to-excellent credit. It’s one of the only two lenders on this list that offers both secured and unsecured loans.

Pros: Avant’s bread-and-butter is unsecured loans, but it also provides secured loans for which you’d use your car as collateral. Avant doesn’t specify a minimum income, and the minimum credit score starts at 580, which FICO considers “fair” credit.

Cons: If you have a “fair” credit score, you won’t be eligible for the lowest APR available; you may get a rate as high as 35.99% so make sure to always make your monthly payments. You also can’t add a cosigner or co-borrower to your application to improve your chances of approval for a more favorable rate.

Avant
Current APR9.95% to 35.99%
Loan Term Range2 to 5 years
Loan Amount$2,000 to $35,000
Prepayment PenaltyNone
Origination FeeUp to 4.75% 
Minimum Credit Score580
Minimum Annual IncomeNone specified
Co-Borrower Allowed?No
Cosigner Allowed?No
Unsecured Personal LoansYes
Secured Personal LoansYes

Best Egg

Overview: The online lender Best Egg offers unsecured personal loans for everything from debt consolidation and home improvement to moving, child care expenses, and adoption.

Pros: Best Egg personal loans can range from $2,000 to $35,000, with repayment terms between three to five years. The minimum credit is 640, and you won’t be penalized if you want to pay off your loan early or make additional off-schedule payments.

Cons: You need a minimum 700 FICO score and a minimum individual annual income of $100,000 to get the lowest APR available. And if you have “fair” credit, you can’t boost your chances of approval through a co-borrower, cosigner, or collateral.

Best Egg
Current APR5.99% to 29.99%
Loan Term Range3 to 5 years
Loan Amount$2,000 to $35,000
Prepayment PenaltyNone
Origination Fee0.99% to 5.99%; 4.99% for loan terms longer than four years
Minimum Credit Score640; 700+ for the lowest APR
Minimum Annual Income$100,000 minimum individual annual income for the lowest APR
Co-Borrower Allowed?No
Cosigner Allowed?No
Unsecured Personal LoansYes
Secured Personal LoansNo

LendingClub

Overview: LendingClub is a peer-to-peer lender that offers unsecured personal loans through an online marketplace connecting borrowers and investors.

Pros: Personal loans range from $1,000 to $40,000, with repayment periods between three to five years. You can get a joint loan through LendingClub by adding a co-borrower to your application — something not all lenders offer.

Cons: You may have to undergo a more stringent verification process (i.e., providing more documentation to prove income, assets, and debt) due to pullbacks from the COVID-19 recession. If you have excellent credit, you may find better rates elsewhere as the lowest APR is higher than others on the list.

LendingClub
Current APR10.68% to 35.89%
Loan Term Range3 to 5 years
Loan Amount$1,000 to $40,000
Prepayment PenaltyNone
Origination Fee2% to 6%
Minimum Credit Score600
Minimum Annual IncomeNone specified
Co-Borrower Allowed?Yes
Cosigner Allowed?No
Unsecured Personal LoansYes
Secured Personal LoansNo

LendingPoint

Overview: LendingPoint is an online-only lender that offers unsecured personal loans to borrowers with “fair” credit” and steady income or employment.

Pros: The minimum credit score is 590, and the loans range from $2,000 to $25,000 with repayment terms between two to five years. You won’t have to pay a prepayment penalty if you decide to pay off your personal loan earlier than scheduled.

Cons: LendingPoint would prefer you be at your job for at least 12 months before applying to a loan, though it’s not a requirement. You need to make at least $35,000 per year, and you can’t add a co-borrower, a cosigner, or collateral to your loan to improve your chances of approval.

LendingPoint
Current APR9.99% to 35.99%
Loan Term Range2 to 5 years
Loan Amount$2,000 to $25,000
Prepayment PenaltyNone
Origination Fee0% to 6%, depending on your state
Minimum Credit Score590
Minimum Annual Income$35,000 
Co-Borrower Allowed?No
Cosigner Allowed?No
Unsecured Personal LoansYes
Secured Personal LoansNo

Payoff

Overview: Payoff is an online lender that works only with borrowers who want to consolidate high-interest credit balances.

Pros: The APR range is lower than many of its competitors, you don’t get charged late fees if you’re accidentally late making a payment, and you can receive free FICO score updates. 

Cons: To qualify for a Payoff loan, you need at least three years of established credit and a 640+ credit score. You also wouldn’t qualify if you live in Massachusetts, Mississippi, Nebraska, or Nevada, or want to take out a personal loan for anything other than debt consolidation. 

Payoff
Current APR5.99% to 24.99%
Loan Term Range2 to 5 years
Loan Amount$5,000 to $40,000
Prepayment PenaltyNone
Origination Fee0% to 5%, included in APR
Minimum Credit Score640, and three years of established credit
Minimum Annual IncomeNone specified
Co-Borrower Allowed?No
Cosigner Allowed?No
Unsecured Personal LoansYes
Secured Personal LoansNo

Prosper

Overview: Prosper, a peer-to-peer lender, lends to borrowers with fair-to-excellent credit scores who want to consolidate debt and take on home improvement projects.

Pros: Co-borrowers and cosigners are allowed and might help boost your chances of getting approved for a personal loan with a better rate. Prosper’s loans range from $2,000 to $40,000 with repayment terms of three or five years.

Cons: If you don’t have solid credit, you may be stuck with an interest rate at the high end of the spectrum (35.99% APR). Prosper also doesn’t offer secured loans.

Prosper
Current APR7.95% to 35.99%
Loan Term Range3 to 5 years
Loan Amount$2,000 to $40,000
Prepayment PenaltyNone
Origination Fee2.41% to 5%
Minimum Credit Score640
Minimum Annual IncomeNone specified
Co-Borrower Allowed?Yes
Cosigner Allowed?Yes
Unsecured Personal LoansYes
Secured Personal LoansNo

Rocket Loans

Overview: Rocket Loans, a subsidiary of Quicken Loans, is a personal loan lender that serves borrowers looking to consolidate debt or finance home improvement projects or auto expenses.

Pros: Rocket offers the lowest minimum credit score (540) of any lenders we reviewed, so you may qualify for a personal loan with a “poor” credit score. You can also get instant decisions and same-day funding through Rocket.

Cons: You can’t boost your approval odds by applying with a co-borrower or cosigner, or by using an asset as collateral for a secured loan (Rocket doesn’t offer secured loans).

Rocket Loans
Current APR7.161% to 29.99% with AutoPay (0.3% higher if invoiced)
Loan Term Range3 to 5 years
Loan Amount$2,000 to $45,000
Prepayment PenaltyNone
Origination Fee1% to 6%
Minimum Credit Score540
Minimum Annual Income$24,000
Co-Borrower Allowed?No
Cosigner Allowed?No
Unsecured Personal LoansYes
Secured Personal LoansNo

Upgrade

Overview: Upgrade, an online-only lender, offers personal loans for debt consolidation and financing home improvement projects and major purchases.

Pros: Personal loans with Upgrade range from $1,000 to $50,000, with repayment terms between three to five years. You can apply for a joint loan if you want to better your chances of getting approved for a low rate.

Cons: If you have “fair” credit, you may end up with an APR as high as 35.97% and an origination fee as high as 8%. People who live in Hawaii and Washington, D.C., aren’t eligible for Upgrade personal loans.

Upgrade
Current APR7.99% to 35.97%
Loan Term Range3 to 5 years
Loan Amount$1,000 to $50,000
Prepayment PenaltyNone
Origination Fee2.9% to 8%
Minimum Credit Score620
Minimum Annual IncomeNone specified
Co-Borrower Allowed?Yes
Cosigner Allowed?No
Unsecured Personal LoansYes
Secured Personal LoansNo

Upstart

Overview: Upstart is an online lender that uses AI technology to evaluate and approve borrowers with non-traditional financial backgrounds, which includes those who may not have strong credit scores but are considered creditworthy in other respects (e.g., having a steady income and employment history).

Pros: Upstart’s AI technology factors employment and education history into your application, so if you have a limited credit history or are self-employed, your odds of getting a personal loan may be higher with Upstart than other lenders. The minimum credit score is 580 (considered “fair”), and you may receive funds as soon as the day after approval.

Cons: Even if you get approved for a personal loan with a “fair” credit score, you may be paying a very high APR. And if you live in Iowa or West Virginia, you won’t be eligible for an Upstart personal loan.

Upstart
Current APR8.41% to 35.99%
Loan Term Range3 to 5 years
Loan Amount$1,000 to $50,000
Prepayment PenaltyNone
Origination FeeNone
Minimum Credit Score580
Minimum Annual IncomeNone specified
Co-Borrower Allowed?Yes
Cosigner Allowed?No
Unsecured Personal LoansYes
Secured Personal LoansNo

What Are Bad-Credit Loans?

Bad-credit loans are for borrowers with low credit scores or a limited credit history. Oftentimes, people end up with low credit scores because of missed payments, bankruptcies, or heavy debt loads — or because they haven’t had enough time yet to establish a credit history. Personal loans are more difficult to get when you have bad credit. But many lenders do offer them — and some even specialize in bad-credit borrowing. 

What is a bad credit score?

Each credit scoring agency defines a bad credit score differently. But for our purposes, we’ll refer to FICO credit scores here. FICO scores are between 300 and 850; the better your credit, the higher your score.

A bad credit score falls within FICO’s “fair” or “poor” credit tiers:

  • Fair credit: 580 to 669
  • Poor credit: 300 to 579

What makes a bad credit score?

There are five factors that make up your FICO score. The percentages reflect how important each of them are:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Credit mix (10%)

If your credit score is low, it’s likely because you haven’t consistently made payments or because you have substantial debt from multiple loans. Your credit score can also get dinged if you have a short credit history, if you have only had access to one type of loan or credit, and if you have recently gotten a new credit card or loan.

How to Get a Bad-Credit Loan

The process of getting a personal loan with bad credit may be more difficult than if you had excellent credit — but you can find one that’s flexible or affordable. You’ll just have to do a little more digging and consider how a loan payment may fit into your budget.

1. Figure out what your needs are

First, consider why you need a personal loan. Are you looking to consolidate credit card debt? Fund a wedding or vacation? Taking out a loan is a big responsibility and can damage your financial health if you’re not careful. We recommend taking out a loan only if it’s going to improve your financial health. Otherwise, you could be sinking yourself into unnecessary debt with unfavorable terms.

2. Shop around

Find out what banks, credit unions, and online lenders offer personal loans for people with “fair” or “poor” credit. With the COVID-19 pandemic, many lenders have tightened their qualification standards and limited lending to people with good-to-excellent credit, but there are still options out there for you. Just make sure the interest rates and fees aren’t too high and that the lender is reputable.

3. Get prequalified

Many lenders offer the option to apply for pre-qualfication, where you can enter a limited amount of information about yourself on the website and see what type of APR and loan terms you’d potentially qualify for. It’s not an official offer, but it does give you a sense of your eligibility for the loan without the lender running a hard credit inquiry on you. A hard credit check (one or multiple) can lead to a temporary decrease in your credit score.

4. Apply

Qualifications and required information will differ between lenders, but you’ll likely need to provide the following details:

  • Permanent address
  • Social Security number
  • Employment history
  • Source(s) of income
  • Existing debts and assets
  • Purpose of the loan
  • Co-borrower or cosigner information

Lenders will also run a hard credit check to understand what your credit score and debt-to-income ratio are. 

5. Gather documentation, once approved

If you’re approved for a personal loan, the lender will need to verify the information you provided during the application process. So it’s helpful to keep the following documents on hand:

  • Driver’s license or other type of photo ID
  • Proof of Social Security number
  • Tax returns
  • Paystubs
  • W-2 forms
  • If paying off debt: account numbers and balances of loans, credit cards, or other debt

6. Withdraw funds 

Once the lender has verified your documentation, you’re ready to receive the loan amount — if you’re approved. Lenders will either mail you the check, direct deposit the cash, or send a wire transfer. And it can take anywhere from one day to a week to receive it. To mitigate any potential problems in the future, we recommend setting up autopay with your lender so you never miss a bill payment.

How to Avoid Scams

Scams are abundant in the world of bad-credit lending. Many predatory lenders will entice people with promises of quick cash, only to charge extremely high fees and interest rates. As a result, those who have low income or low credit scores can find themselves in a cycle of debt. Here are some ways you can avoid getting scammed by a predatory lender.

1. Avoid lenders that don’t ask for your credit

Even if they’re accepting of bad credit, a reputable lender should still ask for your credit history and sources of income. It’s a bad sign if a lender seems like it would accept anyone; it could mean its more interested in extracting fees from people than lending responsibly.

2. Check if the business is licensed and has good reviews

Any lender you work with should be licensed by the Federal Trade Commission in your state. You can find out this information through your state regulator or attorney general. We also recommend checking the lender’s letter-grade with the Better Business Bureau (BBB), which rates companies based on consumer complaints. If a prospective lender has been sued by a state attorney general, for example, you’ll be able to see those details on its BBB page.

3. Don’t pay cash upfront

It’s normal for origination, application, or appraisal fees to come out of the loan amount. But if a lender is charging you cash upfront, that is a major red flag.

4. Ignore the hard sell

Reputable lenders typically aren’t advertising to you over the phone or at your front door. If an ad or sales pitch seems like a scam, it probably is. Similarly, you shouldn’t work with any lender that tries to pressure you into applying or signing a contract.

5. Look for signs the lender is real

Your lender should have a robust and secure website (starting with “https” in the url in your browser and a padlock symbol), as well as a physical address. Online lenders may not have physical storefronts you can walk into, but they should still have an address that signifies an office staffed by employees.

Types of Bad Credit Loans

1. Secured and unsecured personal loans

Personal loans are either secured or unsecured. To get a secured loan, you need to put up an asset (such as your home or vehicle) as collateral for the loan. When you do this, the bank gets extra reassurance about your application and is more likely to approve you or give you a lower APR — but the risk is you could lose that asset if you fall behind on payments. Unsecured loans don’t require collateral and may come with higher interest rates and lower loan amounts, but they’re less risky for you as the borrower.

2. Payday loans

Payday loans are short-term, high-cost loans — often for $500 or less. You can get these loans quickly, but the fees and interest rates are exorbitantly high. Payday loans frequently land people in cycles of debt due to often-predatory lending terms. We recommend avoiding payday loans at all costs.

Pro Tip

If you’re in need of a specialized debt payoff plan, we recommend looking at nonprofit credit counseling agencies. A credit counselor can help you create a budget and improve your credit score so that you won’t need to take out a personal loan designed for bad-credit borrowers.

3. Cash advances

Cash advances are short-term cash loans borrowed from the available balance on your credit card. They can be an easy method for fast cash, but the interest rates are often much higher than a credit card’s standard purchase APR or a personal loan APR.

4. Bank agreements

Bank agreements are small loans given out by banks who have existing relationships with customers. If you’re in a bind, your bank may be able to loan you some cash — but keep in mind these policies are not official and the terms and requirements will differ depending on the lender and the applicant’s financial profile.

5. Home equity loans for bad credit

Home equity loans are fixed-term, fixed-rate loans taken out from the value of your home. These loans are secured by your home equity and may be available to you as a homeowner, even if you have “fair” or “poor” credit. But know that you are taking on additional risk — if you fall behind on payments, your home could go into foreclosure.

6. HELOCs for bad credit

Similar to home equity loans, a home equity line of credit (HELOC) is secured by the value of your home. But with HELOCs,  you’re borrowing from a revolving credit line (not unlike a credit card) and can withdraw cash any time you want within the draw period of the line of credit. After the draw period, you’ll enter a repayment period in which you cannot withdraw more cash and must pay back what was borrowed in a certain amount of time. Because of the COVID-19 pandemic, HELOCs have become extremely difficult to get for anyone with less than “good” credit.

7. Student loans for bad credit

Student loans are available to borrowers with “fair” or “poor” credit who are looking to pay for tuition, student living expenses, textbooks, and other learning essentials. You likely won’t be able to take out a personal loan for student expenses, so instead, you’ll need to shop around among specialized student loan lenders.

How to Improve Your Credit

If you want to increase your credit score to better your chances of getting a loan, here are some ways to do it:

Pay your bills on time every month

Payment history accounts for as much as 35% of your FICO credit score. By reliably paying your bills over time, you can reap the benefits of an improved credit score. Just keep in mind this takes time — change doesn’t happen overnight.

Check your credit reports for errors

You may have a low credit score for reasons beyond your control. Check your credit reports from the three major credit reporting agencies — Equifax, Experian, and TransUnion — for any errors or discrepancies. Through April 2021, the three agencies are offering free weekly credit reports through AnnualCreditReport.com since many are still facing financial instability due to the COVID-19 pandemic. 

Don’t close your credit cards, even if you’ve paid them off

After you’ve finished paying off a credit card, you may want nothing more than to close it and never think about it again. But not so fast — the length of your credit history accounts for 15% of your FICO credit score. Even if you don’t intend on using that card regularly, it’s best to keep it open to show credit agencies that you can be trusted to not use all of the credit available to you.

Avoid opening too many credit cards at once

On the flipside, you don’t want to open so many credit cards. The FICO credit scoring model dings your score if you open — or even apply for — too many credit cards and loans at once. New credit accounts for 10% of your credit score, so make sure you’re being judicious about pushing the “Apply” button.

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Bad Credit

How to Increase Your Credit Limit

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Applying for a new credit card might seem like the perfect solution when you want to manage your spending in a way that works for you.

Be it an intro 0% APR that you’re after, or just more generous rewards on purchases, credit cards let you buy now and pay later, helping you take control of big projects like home renovations and even everyday spending.

As convenient as credit cards are, however, there’s no guarantee that you’ll be approved for the credit limit you want. It can be a let down to submit an application only to receive a credit limit that’s lower than your expectations, and worse — it can put your goals up in the air.

On average, consumers who open a store card may only receive a limit between $2,000 to $2,500, and it can be below $1,000 in some cases, according to Equifax’s Credit Trends report. The average credit limit for general-use cards was higher, averaging between $5,000 to $6,000, but that can still be low for your needs.

Creditors look at a host of factors when deciding your limit, including their assessment of your credit risk, your income level, your credit score and issues they see on your credit report such as high revolving credit card balances, recent inquiries or large loan amounts.

But they take into account a few completely independent factors, too, like how well the economy is doing at the time you applied. There’s no way to predict exactly how much you can expect to be approved for.

It can be disappointing to get a low credit limit, but you’re not entirely without options. After a few months, consider asking for a credit limit increase on your new card, or you can request a higher limit on a card you’ve had for a while.

Here’s a breakdown on how credit limit increases work and how you can request one.

How credit limit increases work

How to ask for a credit limit increase

When you’re ready to ask for a credit limit increase, you’ll have the option of completing the request online or over the phone. You can submit the request via your card issuer’s mobile app or by logging into your online account.

Another option is to call customer service and ask for an increase. This option gives your request a personal touch and allows you to explain your reasoning why you need a larger credit limit and give reassurance that you can repay it. Discussing a recent raise or a longstanding, positive relationship can help strengthen your chances of getting an increase.

Requesting a credit limit increase may ding your credit score a few points if the card issuer pulls your credit report. It’s key to check the online form or ask the rep if your credit report will be reviewed.

Before starting your request, gather this information:

  • Annual income
  • Employment status
  • Monthly housing payments (rent or mortgage)
  • Desired new credit limit, which some issuers let you input during the request

You can typically expect to receive an instant decision on whether your credit limit increase is approved or denied.

If your request was denied, you may need to wait up to six months to try again. While you wait, aim to raise your credit score through on-time payments and boost your income, so you can strengthen the chance you get approved next time. You can also improve your credit score through free services like Experian Boost™, which allows you to get credit for on-time phone, utility and streaming service payments.

Experian Boost™

On Experian’s secure site

  • Cost

  • Average credit score increase

    13 points, though results vary

  • Credit report affected

  • Credit scoring model used

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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Bad Credit

How to Buy a House With Bad Credit: Guide for 2021

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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.”

Having bad credit makes it harder to get a mortgage. A low credit score makes you look riskier to lenders; it suggests you might be financially unstable or unwilling to repay your debts.

A poor score, however, can also simply be the result of not knowing how the scoring process works or having gone through a brief rough patch that required you to take on debt.

If you think you’re ready for homeownership despite your bad credit, here’s what you need to know:

What counts as a bad credit score?

How do you know if your credit is bad? Once you know your score, see where it falls in the ranges below:

  • Poor (less than 640): Lenders consider borrowers in this credit score range to be high risk. Having poor credit means you probably won’t qualify for a conventional mortgage, but you might be able to get a government-backed home loan.
  • Fair (640 to 699): Lenders see borrowers in this credit score range as less risky. You might have less debt or a stronger payment history than borrowers with poor credit. You can qualify for a conventional mortgage with fair credit, but you might need to be stronger in other areas to make up for it, and you could be saddled with a higher mortgage rate.
  • Good (700 to 749): With good credit, you’ll have a much easier time qualifying for a mortgage and getting a low interest rate. You’ll probably secure offers from more than one lender.
  • Excellent (750 and above): An excellent credit score demonstrates your ability to manage debt. You consistently make your payments on time and don’t use too much of your available credit. Combined with a steady income, you’ll qualify for a mortgage from multiple lenders and have the luxury of choosing the least expensive option.

While potential borrowers with poor credit will find it challenging to get a home loan, it can be done. You just need to learn about the options available and how lenders will look at your application.

Find Out: 800 Credit Score Mortgage Rate: What Kind of Rates Can You Get?

Credit score needed to get a mortgage

While your credit score is an important factor in your home loan eligibility, it’s not the only one. Here’s what else lenders care about:

  • Down payment: Depending on the loan and the lender, you’ll need a minimum of 0% to 5% down.
  • Debt-to-income ratio: Typically, you want a debt-to-income ratio of 36% or less when applying for a mortgage. In most instances, it can’t total more than 45% to 50% of your income.
  • Cash reserves: You might need up to six months’ worth of mortgage payments in the bank with a low credit score and/or low down payment.

Minimum credit score by loan type

Loan type
Description
Min. credit score
ConventionalA home loan not insured by the federal government620
FHAGovernment-insured mortgage for borrowers with low credit scores580
(with 3.5% down; 500 with 10% down)
VAGovernment-backed mortgage for military service members (including qualified reservists) who meet length and character of service requirements, and their unmarried surviving spousesNone
(though individual lenders might impose limits)
USDAGovernment-insured home loan for low- and very-low-income applicants in eligible rural areasNone

What having bad credit means for your mortgage rate

The lower your credit score, the higher your mortgage rate, all else being equal. If you have poor credit, expect to pay at least 1.5% more than someone with excellent credit.

The result will be a higher monthly mortgage payment and a higher long-term borrowing cost.

Assuming you’re able to secure a loan with bad credit, you won’t necessarily be stuck with the same rate forever. It might be possible to refinance to a better rate after improving your credit score.

Keep in mind: You’ll have to pay closing costs when you refinance, and if market rates increase, having a higher score might not actually translate to a lower rate.

It’s safer to only take on a mortgage now if you feel confident you can afford it long term, even if you hope to refinance or sell your home in a few years.

Learn More: What Is a Mortgage Rate and How Do They Work?

How to get a mortgage with bad credit

You might already be able to get a mortgage despite your bad credit. For example, if your score is at least 580, you can put down just 3.5% and get an FHA loan.

However, working to improve your score and other aspects of your finances gives you more options and can save you money. Follow the steps below to increase your chances of getting a mortgage:

1. Keep an eye on your credit

It’s never been easier to get a free copy of your credit report. You can receive a free copy of your credit report from each of the three national credit reporting agencies at AnnualCreditReport.com.

Tip: Some sites make it look like you need to pay for your report. You don’t. The three national credit bureaus — Equifax, Experian, and TransUnion — are required by federal law to provide you with a free annual credit report.

Analyze your reports to make sure all the information is accurate. If you find a mistake that could be weighing down your score, dispute it with the credit bureau or with the company that reported the incorrect data.

Check your score weekly as well. This allows you to see how your financial activity is affecting your score. If it’s moving in the wrong direction, frequent checks will help you take quick corrective action.

2. Pay your bills on time

Payment history is the most important factor that determines your credit score, making up about 35% of it.

Make sure all your credit card, auto loan, and other debt payments post to your account by the due date to boost this part of your score.

3. Work on paying down debt

How much you owe makes up 30% of your credit score. Specifically, your credit score evaluates your balance relative to your available credit, often referred to as your credit utilization ratio. The lower that ratio, the better.

For example, your score will look better if your balance on a $5,000 credit line is $500 (10% utilization) instead of $2,500 (50% utilization).

If you rack up a high credit card balance one month, try to pay it down before your next statement is issued to keep your credit utilization down on your credit report.

Tip: If you’re looking to improve your credit score, it’s important that you use at least some of your available credit. Low credit utilization impacts your score more positively than 0% utilization.

4. Stay away from hard credit inquiries

Applying for a loan or credit card will usually ding your credit score if the creditor conducts a hard credit inquiry.

Credible lets prospective homebuyers shop for rates without impacting their credit scores. We’ll show you actual, prequalified rates from our partner lenders — our process is secure and simple, and it only takes a few minutes to complete.

Credible makes getting a mortgage easy

  • Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.
  • We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.
  • A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.

Find Rates Now

Opening a new account — or closing an old one — will also decrease the average age of your accounts, a factor that accounts for 15% of your credit score.

There are situations, however, where the benefit of applying for new credit might outweigh the impact on your credit score.

One example of this is transferring high-interest debt to a lower-interest card, which could help you pay down debt faster.

5. Consider a rapid rescore

If you’re in a hurry to boost your credit score, a rapid rescore might help. Normally, your credit report and score get updated each billing cycle.

This means that after you pay down a credit card balance, for example, your new credit utilization rate might not be reflected in your score for up to a month.

Rapid rescoring can speed up the change to your credit score. Your lender might recommend it if you’re close to having a good enough score to qualify for a loan or better rate.

Tip: Only your lender can request a rapid rescore; you can’t do it yourself.

Keep Reading: Credit Score Needed to Get a Home Loan

6. Save up for a larger down payment

A larger down payment gives you more skin in the game, which makes you look less risky to lenders. It also means you won’t need to borrow as much.

If your income is too high to qualify for other low-credit-score conventional loan programs such as Fannie Mae’s HomeReady, you may still qualify for a conventional loan with a credit score of 620. You’ll need to put 25% down and your debt-to-income ratio must be 36% or less.

In this case, you won’t have to pay for private mortgage insurance. Your monthly mortgage payment will be smaller and your long-term interest expense will be lower. So, while you’ll pay more up front, you’ll pay less each month and over time.

7. Bring on a co-signer

A co-signer whose credit is better than yours could help you get approved for a mortgage or lower interest rate.

However, they will be taking on a huge responsibility: the obligation to pay your mortgage payments if you default. If they can’t, their credit score will be impacted.

In other words, a co-signer must put their savings and their credit reputation at risk to help you. That’s a big ask.

8. Consider a loan type with less stringent credit requirements

As we’ve noted, FHA loans have low credit score requirements. VA loans and USDA loans technically don’t have a minimum credit score requirement. However, these two loan types do have stricter eligibility requirements:

  • VA loans: Only available to military service members who meet length and character of service requirements, and their unmarried surviving spouses
  • USDA loans: Only available to low- and very-low-income applicants in eligible rural areas

9. Shop around to find the best offer

Even with poor credit, you should shop around to find a great mortgage rate. With Credible, you can check prequalified rates from multiple lenders for free, all on one platform.

You might be eligible for better rates than you think. And if you’re not, you now know the steps to get your score into better shape.

Get started today by checking out the table below, and see what rates you prequalify for from our partner lenders.

About the author

Amy Fontinelle

Amy Fontinelle

Amy Fontinelle is a mortgage and credit card authority and a contributor to Credible. Her work has appeared in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual, and more.

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More accountability among council proposals for Akron police

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Akron City Council wants more resources for the city’s only independent police auditor and more public access to police records, from use of force reports to citizen complaints and logs that track the race of everyone stopped by police.

Those are among the recommendations to be released publicly on Monday by council’s special committee on Reimagining Public Safety. Members are trying to answer a community call for a police force that better reflects the demographics and lived experiences those it serves and protects following the police killing of George Floyd in Minnesota last year.

There would be no age limit for police cadets, which the city recently upped from 35 to 40 years. A new “Pathway to Law Enforcement” would ask community and education leaders to steer young adults into careers with the city and the Akron Police Department.

More so than they do now, social workers would help police handle 911 calls involving mental health and addiction. Officers would spend more time walking or biking their beats in an effort to build trust and understanding with the neighborhoods they police.

And council would keep up with the latest in law enforcement technology as city police deploy drones or consider feeding camera footage into crime-solving software that can scan faces and license plates, which would prompt leaders to weigh public safety against personal privacy.

Council President Margo Sommerville will present the full list of recommendations and special committee findings during council’s regular public meeting Monday. The 22-page document is the culmination of 22 subcommittee meetings, each averaging about an hour.

But the report is not the end of the road to “Reimagining Public Safety,” Sommerville explained. The end goal is “more equitable” policing systems and stronger bonds between police and the policed.

As he searches for a new police chief, Mayor Dan Horrigan and his deputy mayor for Public Safety, Charles Brown, express agreement with council in recognizing the best elements of policing in Akron while considering improvements outlined in the listed recommendations.

Next, Sommerville said council will take its newfound knowledge of policing in Akron to the public and rank-and-file officers.

University of Akron President Gary L. Miller said he’s honored and excited that council has asked his faculty and students to develop a community engagement process of surveys and virtual town hall meetings. The information gathering process will solicit feedback from residents, officers and the police union, which as an organization was not given an opportunity to address council’s special committee.

“We know at the end of the day, when we really begin to finalize these recommendations, we’re going to need the Fraternal Order of Police (Lodge #7),” Sommerville said, pinning successful implementation of any reform or enhancement on the commitment of everyone impacted.

FOP President Clay Cozart will see the recommendations Monday. While continuing to disagree with the prominence given to police reform in the wake of Floyd’s death, Cozart said he’s watched every minute of the 22 meetings discussing the work of his members, and he appreciates Sommerville’s willingness to work with the union.

Informed by Akron police officers serving as “liaisons,” the special committee involving every member of council broke out into four working groups.

Police oversight

The Accountability and Transparency group, which met seven times, delved into issues of external oversight, officer discipline and public access to records, drawing on the expertise of police auditors, civilian review board members and national experts on the subject from coast to coast.

Background: Who polices Akron police? Auditor says his office is understaffed, under-resourced

“In our society, we entrust police with the critical responsibility of protecting public safety, including by using force, if necessary,” the working group concluded. “External oversight recognizes that the seriousness of this delegated power requires particular scrutiny in order to ensure that the rights of the public are protected. On both a national and local level, historic injustices have created a trust deficit in how the public, particularly communities of color, interact with law enforcement, and government more broadly. Community trust is essential for effective policing.”

The group settled on two formal recommendations:

  1. Give Akron Police Auditor Phil Young, who answers to the mayor, a role codified in city law with “sufficient authority to access information, adequate staffing and funding and independence from the political process.”
  2. Ensure “that more police data and information is made publicly-available online and updated on a regular basis.”

Prevention

The prevention working group discussed community policing and best practices around responding to mental health, addiction and other 911 calls that can end tragically for officers and citizens.

While identifying funding as the greatest barrier to more robust training, the group recommended that every officer undergo Crisis Intervention Team training. Currently, 76% of officers lack the 40-hour training.

More: Akron’s police chief to retire in 2021

To “help solidify stronger relationships between police officers and the communities they diligently patrol and serve,” the group also recommended more walking and biking for beat cops, something previous councils and mayors have tried to achieve.

The final recommendation recommended a shifting, or at least sharing, of the burden of solving society’s problems, which armed officers encounter daily.

There’s some appetite for the concept, even among officers. Police1, an online source of information and resources for law enforcement, surveyed 4,000 American officers for a special report called “What Cops Want in 2021.” Officers named serving their community as the top reason for becoming officers. They also ranked the types of 911 calls they’d rather see other agencies handle: housing for homeless people (93%), animal control (88%), nuisance abatement (64%), parking enforcement (61%) and dispute mediation (53%), responding to mental health crises (45%) and drug overdoses (29%).

“Throughout our working group meetings, there was a continuing discussion of whether it may be appropriate for social service agencies to respond to some 911 calls relating to mental health or other issues, the idea being that a social service-focused approach might be more effective in some cases, and could also free up APD to focus on issues that clearly need a police response,” the group concluded. “Our APD liaisons made clear that they believe there should be a police response to all calls, as situations are fluid and could endanger non-police responders.”

We also heard from the Police Chief in Alexandria, Kentucky, a small city south of Cincinnati, who described a program in which the department employs two social workers, who follow up on calls (and in some cases respond to calls where the scene is deemed safe).”

The group heard from a Kentucky police chief who sends social workers out on many calls, sometimes without an armed officer. They said Akron, as a community, should involve more social service providers on 911 calls, when “appropriate,” and expand programs where counselors and health professionals follow-up after the fact.

Personnel and culture

A third committee tackled hiring and staffing as commanders must take officers from their patrols to fill specialized units like Neighborhood Response Teams — the backbone of community policing in Akron — or Quick Response Teams that respond to overdoses.

The group recommended more ongoing training and identified potential problems with hiring like not testing for steroids in the screening process because it costs twice as much or disqualifying applicants because they have or lie about a history of bad credit or minor drug offenses.

Background: Akron police force struggles to reflect city’s diversity

To get a more diverse and broader pool of candidates, the group recommended abolishing the current 40-year maximum age for cadets, as other large cities have done.

They also recommended bringing back an Akron Urban League program that prepared candidates for the city’s civil service exam and the creation of a Pathway to Law Enforcement program.

The Pathway program would use neighborhood “figureheads” and public educators to recruit 18 year olds and hold their interest in becoming cops until they turn 21 and are allowed by state law to carry a firearm as a civil servant. For a couple years, they would get city jobs dealing with the public while earning criminal justice credentials through UA or Stark State.

The group added two suggestions: APD should update its mission statement “to include the need for a workforce that reflects community and the need for diversity” and bring in an outside group that would take confidential and “unvarnished opinions” of officers “that could provide constructive feedback for further institutional change.”

Technology and equipment

No formal recommendations, aside from getting a body-worn camera for every officer who interacts with the public, came out of the technology and equipment committee.

More: Akron is ‘Reimagining Public Safety’ with drones, diversity and license plate readers

This last group learned about policing gadgets and systems like unmanned aerial vehicles (drones), “less-lethal” weapons (tear gas, pepper spray, tasers) surplus military rifles and body-worn cameras.

City information technologists informed them of existing software that allows detectives to stake out drug houses or solve crimes by accessing 277 cameras mounted around the city on buildings, lights and traffic poles. The footage is recorded 24/7 and kept for 21 days. And they discussed emergent technology like Briefcam, a program of computer algorithms that scans faces and reads license plates then automatically generates turn-by-turn video of stolen cars or suspects.

“Going forward, it will be important to gauge public opinion about how cameras in public spaces should be used,” the committee cautioned. “With Ring doorbells and other consumer camera systems becoming ubiquitous, it may be that the public is willing to accept greater surveillance by police within public spaces. Still, there should be transparency and clear rules on what is and is not permitted.”

Reach reporter Doug Livingston at dlivingston@thebeaconjournal.co or 330-719-1756

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