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You can get a loan with bad credit — but beware of these risks

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While difficult, you can get a loan with bad credit. But it comes with risks. Lenders want to know you’ll repay your loan, so they may charge high interest and offer less favorable terms. (iStock)

Bad credit can happen to anyone. One day you’re on the top of the FICO Score, and the next day you’ve landed at the bottom with a score below 669. Maybe you lost your job or hit a rough patch. Now, you owe large amounts of money, you’re making late payments or paying nothing at all.

Explore all of your personal loan options by visiting Credible to compare rates and lenders all in one place.

  Can you get a loan with bad credit?

While difficult, you can get a loan with bad credit. But it comes with risks. Lenders want to feel confident you’ll repay your loan, so they may be a bit reluctant to approve your application if you have bad credit.

Several online lenders are willing to work with people with fair to bad credit. The application process is relatively straightforward, but you’ll likely pay a higher interest rate, your term may not be as favorable, and the loan amount may be for less than you need. But applying through your bank or credit union may make the process much more challenging, and you may not get approved at all.

Bad credit? Visit Credible to use their personal loan calculator and find the best personal loan rates.

HOW TO PREQUALIFY FOR A PERSONAL LOAN

What are the risks of taking out a loan with bad credit? 

If you have bad credit, know the risks before you apply for a personal loan.

1. Higher interest rates

If you are approved for a loan, you’ll pay higher interest rates and more interest over time. That’s because having a low credit score indicates to lenders that you’re a riskier borrower than if you had a higher credit score. To offset the risk, lenders charge higher rates.

And, if you make late payments or default on your loan, your credit score will sink even further, making it very unlikely you’ll qualify for a loan in the future.

To learn more about personal loans — and what you need to do to ensure you can manage your debt effectively, head to Credible. You can use Credible to compare rates and lenders all in one place.

HOW TO GET A LOW-INTEREST PERSONAL LOAN

2. Calls from creditors

If you’re unable to make the payments on your personal, car, or mortgage loan, your lender will reach out first to recover its money. If that doesn’t work, a debt collector will likely contact you multiple times.

With that in mind, if your loan is in default, you are protected under the law via the Fair Debt Collection Practices Act (FDCPA). It spells out what credit bureaus and debt collectors can and cannot do, such as making threatening calls, using obscene language, or harassing you.

HOW TO GET APPROVED FOR A PERSONAL LOAN

3. You may need a co-signer

If you need a loan but you have bad credit, you may consider applying with a co-signer. If somebody you know guarantees the loan, basically promising to repay the debt for you if you can’t, it can improve your chances of getting qualified.

A co-signer with good to excellent credit may even get you better rates and terms on your loan. And, as you repay your loan, your credit score will improve. But if you default on your loan, your co-signer is on the hook for your payments.

You can find a list of lenders that offer personal loans with cosigners here.

HOW TO GET A $100,000 PERSONAL LOAN

How to build your credit?

There are other consequences of having bad credit—you may not be able to rent an apartment, or your security deposit may be double what it would be if you had good credit. Lenders may charge you higher insurance rates, or you may find it difficult to get a job. Fortunately, there are ways to boost your credit score.

1. Going forward, pay all of your bills on time. 

2. Get a secured credit card. Backed by an upfront cash deposit, you use a secured credit card much like a standard credit card. You can charge up to the maximum credit limit, which is usually your deposit amount. Secured credit cards can still be a good option if you’re looking to boost your credit score and history. Here are Credible’s secured credit card suggestions that offer a “worry-free way to build your credit.”

3. Apply for a secured loan. A secured loan is backed by collateral or personal assets. Make your loan payments, and your credit will improve over time. Miss payments and your credit score suffers.

4. Apply for a credit-builder loan. When you apply, and you’re approved, you deposit the amount of the loan into a savings account. Make your payments on time every month and once the loan is paid off, you get your deposit back.

5. Become an authorized user. Ask a friend or family member who has good credit if you can become an authorized user on their credit card. But neglect to make your payments, and your friend or relative is responsible for any debt you’ve racked up.

There are also lenders willing to work with you until you’ve raised your credit score. Visit Credible — loans for 580+ FICO and rates from multiple lenders in just two minutes. Plus, checking your rate won’t impact your credit score.

HOW MUCH DOES A PERSONAL LOAN AFFECT YOUR CREDIT SCORE?

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Bad Credit

3 credit habits that you need to break

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Are you using your credit card responsibly? Or do you have a few bad habits? Take a look at three common bad habits that people have with their credit cards and the best ways to stop doing them.

Habit 1: Pushing the limits

The first bad credit habit is pushing your outstanding balance close to its limit. What’s wrong with that? The first problem is that you’re giving yourself a larger debt load to contend with every month — one that accumulates interest the longer that it sits. It could be very difficult to pay down, and it could even lead to you maxing out your card.

The second problem with this habit is that it leaves you vulnerable to emergencies. You’ve taken up the majority of your available credit, so you can’t depend on it for unexpected payments. What if you need to pay for an urgent repair and there’s not enough room on your card? What can you do?

To avoid that difficult situation, you could apply for an online loan to help you cover the emergency costs and move forward. See how you can apply for an online loan in Ohio when you have no other safety nets to fall back on. It’s important that you only turn to this solution when you’re dealing with an emergency. It’s not for everyday purchases or small budgeting mistakes.

In the meantime, you should try your best to keep your credit utilization at 30% or lower — this means that your balance should be below the halfway point of your limit.

Habit 2: Paying the minimum

You pay your credit card bills on time, but you only give the minimum payment. While this habit can stop you from racking up late fees and penalties, it can still get you into hot water if you’re not careful.

Only paying the minimum for your bill will make it very difficult for you to whittle down the balance, especially when you’re continuing to charge expenses on your card. You’re only taking $20-$25 off a growing pile.

So, what can you do? If you’re paying this amount by choice, stop it — you’re only making things harder for yourself down the line. If you’re paying this amount because you don’t have any more funds, look at your budget to see whether you can cut your monthly costs to get more savings and use them to tackle your balance.

Habit 3: Using it for every single expense

You don’t need to put every single expense on your credit card. Your morning coffee? Your afternoon snack? Putting these small, everyday expenses on your card is a habit that can make your balance climb quickly.

You also don’t want to put some very important expenses on there, like mortgage payments. For one, these payments are large and will take up a significant amount of your credit. Secondly, if you need to use a credit card to make these payments on time, you need to reinvestigate your budget to see whether you can actually afford your living space.

So, what you should you do? Use a debit card, cash or checks to pay for the items above. Only put expenses on your credit card that you’re positive you can pay off in a reasonable timeframe.

Don’t let these bad habits drag you down and get you into financial trouble. Break them now, before it’s too late.

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Free credit reports have been extended; here’s why it’s important to check yours regularly

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Checking your credit could save you from identity theft. (iStock)

Typically, you’d be able to check your credit report — at least for free — just once annually through each of the three major credit reporting agencies. But thanks to the coronavirus pandemic, credit reports are now more accessible than ever.

Credit reporting companies Equifax, Experian and TransUnion are all offering  free credit reports weekly through April 20, 2022.

The move means better insight into your financial health during what, for most, is an economically challenging time. According to experts, it might also be a time that’s ripe for at-risk personal information and identity theft, too — even more reason consumers should be checking their credit on the regular.

HOW OFTEN DOES YOUR CREDIT SCORE CHANGE?

Have you checked your annual credit lately? If not, here’s what you need to know about these free nationwide credit reports and how to get them. If you’re not sure where you fit on the credit score spectrum, you may want to start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.

Free credit reports for all?

The nation’s three credit bureaus initially started offering free weekly credit reporting last year, just after the pandemic began. In early March, they announced they’d extended the offer for another year, this time through April 20, 2022.

To request your free credit reports and access copies, you can go to AnnualCreditReport.com and provide some basic information to verify your identity (things like your date of birth, Social Security Number, and address).

Once your report is ready, you should see a detailed list of all open and closed accounts in your name, your payment history, recent credit activity and more.

5 BENEFITS OF HAVING A GOOD CREDIT SCORE

Protect yourself from identity theft

There are many reasons why checking your credit activity is important, but chief among them? That’d be the prevalence of data breaches in today’s world — not to mention the risk of identity theft they come with.

“In the past, it was perfectly acceptable for people to check their credit history once a year, but now with security breaches happening on a regular basis, consumers should be monitoring their credit more closely than ever,” said Clint Lotz, president and founder of TrackStar.ai, a predictive credit technology firm.

Lotz said the Equifax breach — which exposed over 147 million Americans’ personal information in mid-July 2017 — is the perfect example of why watching your credit report is important as far as identity theft protection goes. The pandemic, he said, adds an extra layer of risk to things.

“It took them [Equifax] months before they even realized they had been hacked, and considering that they hold files on hundreds of millions of Americans, it’s fair to say that many identities were stolen by the time they caught up to it,” Lotz said. “With many of us worrying about very serious issues not related to our credit, it’s a prime time for that stolen data to be put to work by bad actors in slow, methodical ways and in the hopes that nobody notices it.”

More reasons to check your credit

Checking your credit health often isn’t just good for detecting fraud alerts and to protect your identity, though. You can also monitor your report for errors — things like inaccurately reported late payments, for example — and then dispute those with the credit bureau.

If the error gets corrected, it could improve your credit score and make a jump from bad credit to a FICO score that’s more favorable. Not sure of your credit score? Head to Credible to check your score without negatively impacting it.

WHAT IS CREDIT MONITORING, AND HOW DOES IT WORK?

You can also use your credit reports and scores to monitor your financial habits — like the timeliness of your payments or how much debt you have left to pay off. Both of these factors can play a big role in your score, as well as how likely you are to get approved for loans, credit cards and other items.

“If you’re taking out a loan, getting insurance or even applying for a new job, checking your credit will allow you to see an overview of what would be seen by others looking at your credit,” said Leslie Tayne, a debt relief attorney with the Tayne Law Group. “Staying up-to-date on your credit reports and information allows you to know exactly where you need to improve.”

Want to be sure your credit is stellar before applying for a loan or insurance policy? Consider Credible’s partner product Experian Boost, which lets you use positive payment history on utilities, streaming and other bills to improve your credit score.

Set up a monitoring service, too

Though checking your credit reports manually is smart, you should also consider signing up for a credit monitoring service. These consumer financial services check your credit information and score regularly and alert you of any changes.

IS IT WORTH PAYING FOR CREDIT MONITORING?

If you’re interested in monitoring your credit or improving your score, head to Credible and learn more about how Experian can help. You can also use Experian Boost to get credit for on-time bill payments.

Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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Bad Credit

Do Personal Loans Have Penalty APRs?

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

When you make your credit card payment late, you’re often subject to late fees and a penalty APR, which is a temporary spike in your interest rate.

The Blue Cash Preferred® Card from American Express, for instance, has a 13.99% to 23.99% variable APR, but the penalty APR is a variable 29.99% (see rates and fees). Penalty APRs usually last for at least six months, but card issuers often reserve the right to extend them — especially when you continue making late payments. A look at the terms for the Citi® Double Cash Card show us that the “penalty APR may apply indefinitely.”

Penalty APRs are certainly not a trap you want to fall into, but it’s not something you usually have to worry about if you have a personal loan. Personal loan lenders can, however, charge late fees upwards of $39 per late payment. Whether your loan charges late fees all depends on how good of a loan you qualify for, and that comes down to your credit score, borrowing history and ability to make your payments.

Personal loans also tend to charge lower interest rates than credit cards, too. The average personal loan interest rate for two-year loans is currently 9.46% according to Q1 2021 data from the Federal Reserve, compared to 15.91% for credit cards.

Typically, interest rates for personal loans range between roughly 2.49% and 24%, but personal loans for applicants with bad credit can come with even higher APR — so do your research before applying.

Other common personal loan fees include:

  1. Interest: The monthly charge you pay to borrow money
  2. Origination fee: A one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs
  3. Late fee: A one-time fee charged for each payment that you fail to make by the due date or within your grace period
  4. Early payoff penalty: A fee incurred when you pay off your balance faster than planned (because the lender misses out on months of expected interest payments)

As you can see, personal loans can be costly, even without a penalty APR. It’s obviously best to avoid paying extra fees whenever possible. That’s easier to do when you have a good to excellent credit score, since you’ll qualify for better loan options.

Select has a free tool to help match you with personal loan offers without damaging your credit score.

None of the loans on our best personal loan list charge origination fees or early payoff penalties, but some may charge late fees.

Our top picks for best personal loans

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

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