Is a bad credit rating preventing you from getting a loan? This can be frustrating as it creates a financial situation that is very hard to dig yourself out of as you often need to use credit to rebuild your score. Additionally, not being able to access credit can interfere with your life and could make emergencies difficult to manage. During a cost-of-living crisis, this is something that many people will be struggling with right now.
Why Does Bad Credit Make it Hard to Get a Loan?
So, why exactly does a bad credit score make it hard to get a loan? This is because lenders primarily use an individual’s credit rating to decide whether or not to approve them. Your credit score will let a lender know how reliable you are as a borrower, so if you have a bad rating, then they will think that you are less likely to be able to repay the loan and/or make late payments that end up costing them money.
So, what can you do to get approved for a loan if you have a bad credit score? Fortunately, there are solutions to this issue.
Improve Your Score
First, you should take steps to improve your credit score before applying. This can take time, so the earlier the better. There are many ways to improve your score, including:
- Checking your report for errors
- Registering to vote
- Closing unused accounts
- Ending financial ties to those with bad credit
- Making payments in full and on time
- Using credit little and often
- Clear debt
If you are struggling to get approved for a loan, you could consider alternative ways to get your hands on the money. Alternatives include borrowing from friends and family, crowdfunding, and selling unwanted possessions.
It is important to be aware that applying for multiple loans can hurt your credit rating, which is why you need to avoid making multiple applications in a short time frame. You can also get prequalified, which allows you to see what you could be offered without it impacting your rating.
Take Out a Bad Credit Loan
You should know that there are lenders out there that approve loans for those with a bad credit rating. Bad credit loan providers look beyond numbers on a screen and consider your circumstances. This can also be a useful way to start rebuilding your score.
Get a Guarantor
Another option is to get a guarantor for the loan. Essentially, this is someone that agrees to pay back the debt if you default on any repayments.
It is frustrating when you have bad credit and need to take out a loan for any reason, but you should know that there are always things that you can do to get the money that you need.