Best Loans for Poor Credit | Guide | How to Find the Best Loans for People with Poor Credit

Guide: How to Find the Best Loans for People with Poor Credit

Acquiring loans for poor credit is a difficult and frustrating process. Your credit score is the number that ultimately determines whether you get good credit loans that come with competitive interest rates or poor credit loans with horrifying rates. Although there are loans for people with poor credit, they come at a tremendous cost.

Getting loans with poor credit is an exercise in making sacrifices. You may be forced to stomach an abysmal interest rate, or you may have to reconsider whether the purchase you want poor credit loans for is even worth the trouble.

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In this article, we will go over ways to seek out loans for poor credit. By providing an overview of how credit works, this review on poor credit loans will also help individuals understand how they can improve their credit scores so that they are not limited to only getting loans with poor credit.

Finally, we will provide some helpful suggestions for where to find the best loans for poor credit.

How Is Your Credit Score Calculated? (The Number That Forces People to Seek Poor Credit Loans)

Naturally, you know that you have poor credit if you are seeking poor credit loans. You also likely have a basic understanding of why you have poor credit – which is causing you to search for loans for poor credit.

Chances are that you have large debts or have missed a number of loan payments, leading to this scenario in which you need loans for people with poor credit.

But who exactly determines your credit score? How is it calculated? And how can you improve it so that you can access credit products that are better than loans with poor credit?

Who Calculates Your Credit Score?

There are several organizations that calculate credit scores, but your credit score might as well be equal to your FICO score since most financial institutions use this number. It is the number that determines whether you will be getting loans for good credit or loans for poor credit.

FICO, short for the Fair Isaac Corporation, is a data analytics company. It calculates a score that banks can use to gauge a customer’s creditworthiness (aka whether or not they are good to pay back the money) based on the customer’s credit report. Loans with poor credit are typically the only option for those with a low FICO score seeking credit products.

There are three credit reporting agencies in the United States: Experian, Equifax, and TransUnion. Any time you take out a credit product, that information – including your payment history – is relayed to one of the three credit agencies. However, if banks scanned everybody’s credit reports to determine whether they were eligible for good credit loans or poor credit loans, they would spend an enormous amount of time on each customer.

Instead, FICO has developed a secret formula that calculates a person’s creditworthiness, and its accuracy has led it to be used by most lenders to determine whether to extend loans for poor credit or loans for good credit to different borrowers.

Even though the exact formula is kept secret, FICO provides some idea of how it calculates the credit:

Thirty-five percent of your FICO score is based on your payment history. This is referring to your record of making full and timely payments on your minimum monthly payment. As you can see, a large chunk of your credit score is determined using this information, so if you have a history of missing payments and are looking for loans with poor credit, this is likely one of the main reasons why.

Thirty percent of your FICO score is determined by how much you still owe. If the amount of money you owe is a large percentage of the amount of credit that is available to you, this will negatively impact your credit score, leading you to have to find poor credit loans.

Fifteen percent of your FICO score is based on how long you have held credit.

Ten percent of your FICO score is determined by your credit mix. This refers to the varieties of credit you have, like installment loans or revolving credit.

Ten percent of your FICO score is determined by the new credit you have. This is a good indication of whether other creditors have trusted you enough to extend credit to you.

Certain things people can do – in the case that they want to improve their credit score or find the best loans for poor credit – is work hard to pay down their balance as well as spend time making regular payments to establish a history of responsible credit management. Doing these things can help improve your credit, and they can open up options beyond poor credit loans.

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Poor Credit Loans: What Is Considered a Poor Credit Score?

If you are struggling because you have to find poor credit loans, here is a helpful range to understand where your credit score falls:

800 plus: Exceptional credit score
740–799: Very good credit score
670–739: Good credit score (this is the median range)
580–669: Fair credit score that is below the average; considered subprime borrower
579 and below: Poor credit score; likely to be rejected by creditors

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Should You Spend Time Improving Your Credit Score or Looking for the Best Loans for Poor Credit?

If you are holding out for the best loans for poor credit but are not having much luck with your poor credit loans search, perhaps you should consider a different strategy.

Instead of banging your head against the wall in frustration while searching for loans for poor credit, why not improve your credit first so that you can look for something other than loans for people with poor credit?

Of course, it depends on what kind of loans for poor credit you are looking for and the urgency of the reason for your loan. If you desperately need a loan for repairs to your plumbing or medical expenses, you probably are not in a position to wait and build up your credit score.

On the other hand, if you can make some sacrifices and put off your search for poor credit loans, you can use the time to start building up your credit so that you have access to more competitive interest rates.

FICO provides some helpful tips for improving your credit score. Since the people you are trying to find the best loans for poor credit from are likely using FICO scores, FICO is a preferred spot to find this kind of advice.

As mentioned earlier, if you want to commit to a strategy of repairing your credit score, you will need to have some patience and put your search for the best loans for poor credit on hold. Despite many claims to the contrary, there are not many fast strategies for fixing your credit score. It takes time, discipline, and dedication to get to a place where you are eligible for something other than poor credit loans.

Verify Your Credit Report

Your credit score is ultimately determined by your credit report. If there are errors on your credit report, you will receive a flawed (and unfair) credit score, potentially forcing you to look for poor credit loans. Verify your credit reports and ensure that everything has been reported correctly. You are entitled to one free credit report each year from each of the three credit reporting agencies.

Set up Automatic Payments or Reminders

Remember, a large part of your credit score is determined by your payment history. If you do not make your minimum payments on time, your credit score will be very negatively affected, leading you to have to find loans with poor credit.

Set up reminders so that you never miss a payment. If you can swing it, set up automatic payments so that your credit payments are automatically taken from your checking account every month. Improving your credit payment history is an effective way to get on the road away from needing loans for poor credit.

Chip Away at Your Debt

This is a difficult one to do, but if you can swing it, you can significantly improve your credit score and look for credit products other than the best loans for poor credit. Your debt-to-credit ratio is another factor that affects your credit score, so if you can reduce the amount of money you owe, this can help you out.

Look for ways to save money that you can contribute to your debt. Consider taking public transit instead of your car, and then put the savings on gas, car payments, and insurance towards your debt. Cut down on your groceries. Eliminate discretionary expenses, like eating out or entertainment. It can be tough, but this kind of discipline can help you move away from looking for poor credit loans.

If you can’t afford to do this, then at least catch up with any late payments that are outstanding.

How to Get the Best Loans for Poor Credit (Poor Credit Unsecured Loans and Guaranteed Loans for Poor Credit)

If you are looking for a loan with poor credit, but you do not want to have to pay exorbitant interest rates, there are potential alternatives.

Home Equity Line of Credit

If you have a lot of equity tied up in your house, you may be able to find good loans with poor credit. However, this option would not be for poor credit unsecured loans. You would be getting a home equity line of credit as your loan with poor credit.

A home equity line of credit allows you to borrow money against the equity in your home as your loan with poor credit. What is the equity in your home? If you have been paying back your house’s mortgage for years, you have built up a portion of your home that you own (the rest is technically owned by the bank until the mortgage is paid off). This is an option for people who are looking for good loans for poor credit.

In this case, the bank knows that there is money somewhere if you are unable to pay off your loan. If you are unable to pay back the loan with poor credit, it will sell your house. The bank receives the money that it is owed, and you have to use some of the equity you get from the sale of the loan to pay off the home equity line of credit if you default. Poor credit unsecured loans are a near impossibility to get without an extremely high interest rate, but a home equity line of credit is a definite option if you have enough equity built up.

Peer-to-Peer Loans

This is an option for poor credit unsecured loans, although these peer-to-peer lending platforms do not mean guaranteed loans for poor credit. You can borrow directly from an individual on these platforms, and they are more inclined to look at more factors than just your credit score such as what you want to borrow the money for. Those lending money on peer-to-peer lending platforms will still take your credit score into consideration, but they will also look at other factors as well. It is a more personal approach.

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Credit Unions

Credit unions operate on a more client-friendly basis. Whereas banks have their shareholders to answer to, credit unions operate like a cooperative in which their members are like part owners. Credit unions pass on their savings to their customers in the form of lower interest rates and low or non-existent bank fees. If you are looking for good loans for people with poor credit, you may want to consider looking at a credit union.

Credit unions typically have eligibility requirements since they make an effort to stay small or local. Check with your employer or in your area to see if you automatically qualify for membership in a credit union. Veterans and members of nonprofit organizations may also be eligible for participation in corresponding credit unions. This may be a great option for those looking for loans for poor credit.

Best Loans for Poor Credit (Options for Loans for People with Poor Credit and How to Find Poor Credit Loans)

There are several websites that are dedicated to helping people find the best loans for poor credit. They will still carry less-than-attractive interest rates, but they are available options for loans for people with poor credit.

Website for Finding Guaranteed Loans for Poor Credit

While you should be wary of anything that advertises itself as a place that offers “guaranteed loans for poor credit” (even loans for people with terrific credit are technically not guaranteed unless they are pre-approved), there are websites that specialize in really poor credit loans.

Badcreditloans.com offers a platform where people can search and apply for poor credit loans specifically. The site has been running since 1998, and its mandate is helping find loans for people with poor credit. The site is free to try, it is secure, and there are resources available to teach users how to be responsible consumers and get on top of their debt.

Website for Peer-to-Peer Poor Credit Loans

Peer-to-peer loan sites are an opportunity for those looking for poor credit loans to have somebody who will look at the big picture. They can be considered as a person as opposed to just a number.

Peerform.com offers just this kind of a platform. In fact, it is a peer-to-peer lending platform that is known for offering poor credit loans, with people who are willing to look beyond just a person’s credit score. In fact, the site describes its philosophy to considering loan applications as an “all-encompassing approach” in its mission statement, where it states that a FICO score is not the only variable for calculating risk.

Website for Finding Poor Credit Unsecured Loans

Avant is another source for poor credit unsecured loans (also known as personal loans). You can quickly check your rate through the website. Whereas applying for credit can cause a hit to your credit score with regular financial institutions, your credit score is not affected by checking your rate with Avant.

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Do Your Research and Work on Improving Your Credit Score to Make Your Poor Credit Loans Search Less Painful

Finding loans for poor credit can be a frustrating struggle. The best thing to do is to take the time to improve your credit by paying down debt so that you can look for something better than the best loans for poor credit. If that is not an option, consider checking out some of the sites mentioned in this article. The interest rates on these bad credit loans may be higher, but you have a better chance of being approved for some credit.

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