Bad credit has, well, a bad reputation. After all, credit is like a report card for borrowers. Lenders check your grade (so to speak) whenever you apply for a new loan to see if you meet their qualifications.
A bad credit score is the equivalent of getting a ‘D’ in English class when you’re trying to get into university for humanities. It can get in the way of your next loan, just like your academic transcript can stop you from getting into the school you want.
Unlike your student permanent record, your credit report changes with every borrowing decision you make. That means you aren’t stuck with a bad score forever. You can build up your score by making conscious decisions with your money.
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What is Bad Credit?
The Fair Isaac Corporation (FICO) is the financial world’s most popular scoring model. It’s used by the biggest banks and the smallest online direct lenders alike.
Under the FICO model, credit scores fall on a spectrum of 300 to 850, with 850 being the highest and best score you can earn with good behavior.
On the other end of this spectrum, 300 is the worst you can have. It marks the beginning of “bad credit”. Anything between 300 and 669 falls under this category.
Borrowing with a Bad Score
Many mainstream banks enforce strict rules about credit; they worry consumers with low scores may not pay them back on time.
If your three-digit score is under 669, that means you may have a harder time borrowing money. However, many financial institutions understand that life happens, and even people with bad credit still need to borrow fast cash sometimes. You can research online direct lenders that have more lenient rules surrounding credit, finding a financial institution that looks at other financial stats to assess your creditworthiness.
You can also consider getting a cosigner to apply with you for your next personal loan. So, why do you need a cosigner when borrowing with a bad score? First of all, you don’t need to, as you may be able to find online direct lender loans on your own. However, a cosigner loan may be an option if you can’t find these lenders.
Secondly, a cosigner is another person you trust who applies with you for a personal loan. Ideally, you choose a loved one with great credit and a decent income. They lend their financial good name to your application, and they promise to pay any bills you cannot.
While you may have no intention of having your cosigner cover a single loan payment, their pledge to pay reduces the risk you pose to lenders. As a result, you might have an easier time qualifying and getting favorable terms.
How to Improve Your Score
In a perfect world, you won’t have to borrow money — on your own or with a cosigner — in the time it takes you to improve your score.
This article cannot give any promises on how quickly you can build your score. Timing depends on the unique contents of your report, plus the borrowing decisions you make in the future. However, these universal money manage tips can help anyone add positive entries to their report.
- Find extra income — pick up a side gig or part-time job and funnel this money into debt.
- Make the minimum payments on a line of credit or credit card if you can’t pay off your entire balance.
- Use a budget to prioritize your spending on bills first.
- Set up calendar reminders to avoid missing due dates.
- Try to avoid adding more debt to your plate.
Over time, these habits can turn into positive credit history.
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