All banks claim that they offer quick and easy loans to everyone now. But it so happens sometimes that people’s applications for loan are rejected by banks and other financing companies. Or, they are given loans with higher than normal rate of interest and shorter term-periods. This happens due to a bad credit score.
What is credit score?
Every country has a similar credit score system, even if the name is different. The credit score is measured usually out of 850. It is used to project your ability of repaying your debts based on your past loans and bills. This includes, but is not limited to your record of repayment of loans and partial or complete default of any type of credit with the bank. Banks judge a person’s eligibility to acquire a loan from them based on their credit score.
If you have a bad credit score, you should gradually work towards improving it. The more you neglect your finances, the harder it will get to manage them.
Credit Score and Loans
All major banks and financial institutions rely on credit score ratings to assess the credit worthiness of loan applicants. If you have a score of 700 or above out of 850, banks will quickly approve your loans and you will get the best terms. If your score is anything below 600, your application for loan will not be entertained by most banks and finance companies. Even if they agree to lend you money, you will be charged a high rate of interest and the terms would not be very relaxed.
Your credit score is based on your past capability or incapability to pay bills and loan installments in the past, and it takes a long time to update. So, even if you have cleared up all your overdue loans and bills, and have a high salary now, your credit might still be low. Therefore, your loan application might not be approved.
Your credit score is not the latest, absolute measure of your financial security, savings and the ability to repay a loan. That is why even if you have a bad credit score, and cannot get loan from a bank, there are other options available for you to get a loan.
How to get a loan then?
The people whose loan applications are rejected often look for help from local moneylenders. Since there are no specified regulations and formalities, they end up paying exuberant interest on even a small amount loan. Inflexibility in terms of loan repayment options and tenure only makes matters worse.
You should know that there are many private lending companies that entertain short term loans bad credit applications. These companies consider your present financial condition and ability to repay loan. So, even if you have a bad credit score, you will get a loan to take care of your financial matters.
However, since these companies have relaxed policies about credit scores, they might charge a higher rate of interest than the bank. Your loan repay period might also be less than that offered by banks. But even with slightly elevated rate of interest on short term loans, these loan providers are a better option compared to local moneylenders. You can negotiate the terms further if you can show some savings or reserves, or include collateral to the loan terms. This gives the lender some trust in your repayment capacity, and they can offer you a lower rate of interest or extended tenure for repayment.
If you need money on an urgent basis and your credit score is not good enough for acquiring a loan from the bank, you can find private lending firms online easily. You can compare the short term loans bad credit terms and conditions of some companies and decide your ideal one. Learn thoroughly about the loan from the representative and read all the related documents very carefully.
How to know and improve your credit score?
Since banks do not entertain loan requests from people with bad credit scores, having a bad credit score attracts a lot of negative thoughts and stigma. Most people don’t know how to work on their credit score, although it is very easy. You can request information about your credit score from the authority that analyses and maintains credit scores in your country. There are various private websites and firms who can tell you your credit score as well. They also tell you the dues or defaults that cause the most decline in your score.
Once you know which dues are affecting your credit score the most, you can prioritize your bills and start repaying them accordingly. If you are not able to pay your overdue bills at once, you can work out monthly installments plans with your bank to pay them. Most major banks and companies agree to such installment plans as it allows them to recover the debt that would have been very difficult to settle otherwise. As you start repaying your debts, your credit score will start improving gradually.
When your credit card company or bank approaches you for debt settlement, they will give you an option to pay a reduced amount and settle the debt. While this option gives you a small relaxation in the amount to be paid, this impacts your credit score. If you settle for a lower amount, the debt details do not go away from your score, keeping it low even after the settlement. This is why you should work towards closing the debt by paying off the full amount, even if you do it in small instalments.
Start saving money regularly so that you have a good financial status to show to the bank or private companies in case you need a loan. Pay your dues and save money for emergencies and maintain healthy financial security. If you fail to get a loan from bank, do not be disappointed. Do not fall for unreliable private companies that claim to offer good loan schemes. Always choose a trusted company to get a loan from.