Getting loans with bad credit history is a challenge. Depending on the economic environment you will likely face higher interest rates and more restrictive loan terms. But unconventional personal and mortgage loans are out there, and some can even help you improve your credit history.
What Your Credit History Means
The three main credit reporting bureaus - Esperian, Equifax and TransUnion - warehouse information on all borrowing you do reported to them by your creditors. Negative actions such as late payments stay on your credit report for seven years, a bankruptcy for 10 years. That credit history helps yield your credit score, which is what lenders look at when considering what interest rate to offer you or whether they will loan to you at all.
In good economic times, lenders compete for your business and even with bad credit history loans are plentiful, albeit with higher interest rates. In slower times, lenders grow more cautious.
One way to get loans with bad credit history is to secure them with collateral. The worse your credit history the more collateral you will have to put down. But collateral comes in many forms. It can be cash, if you have it; home equity; your auto, if it’s debt free; jewelry; art; land; almost anything of value.
You will get your best bad credit history loans with secured borrowing.
Of course, many with bad credit history have little collateral and cannot qualify for most unsecured loans. Don’t overlook credit cards in this instance. The credit card industry is so competitive that there is a card for most credit histories. And as you stay current on your card and other borrowing, your credit history improves.
But don’t make your situation worse by misusing credit cards. Avoid these pitfalls:
- Multiple Cards. In today’s competitive market you can get multiple cards, but having a lot of cards, even if you use them to reduce your overall debt, can hurt your credit score.
- Borrowing Too Much. You’ve only made your situation worse if you max out another credit card and can’t keep up with it. Only use a card for what you need and what helps you.
- Making Minimum Payments. Don’t get cards if you can only keep up with the minimum payments. Because of the high interest rate, you will be adding to your total debt every month.
Some borrowers need bad credit history loans for far more than secured loan or a credit card can provide, for a home as an example.
There are lenders who specialize in subprime borrowers, in other words those with low credit scores. You will pay a higher interest rate for such loans and you will be required to clearly demonstrate your ability to pay. But if home values appear to be rising and you can afford the mortgage loan, the rising equity in your home can make it a good deal. Additionally, as your finances improve, you can always refinance to a lower rate and better terms later. Lenders are always looking for good borrowers.
Borrowing from friends or family is the simplest, and often least costly, unconventional method of getting loans with bad credit history. You can get more favorable rates and terms from someone who knows you well and believes in your ability to repay.