Southern states have some of the lowest credit scores in the country, with Mississippi having the lowest average credit score of 675. A low credit score can negatively impact several areas of your life, from finding an apartment to securing a job in some industries. Your credit score can become a major hurdle if you want to secure a personal loan.
Keep these tips in mind, and do not let your low credit score stop you from securing a personal loan.
Check Your Credit Report
The first step you need to take is to request a copy of your current credit report. This will show you your credit history and current official financial status. This lets you know exactly where you stand so that you can look for lenders and personal loans that best fit your current needs and current financial status.
Check For Errors
You should also read over your credit report to ensure there are no mistakes. Incorrect information can bring down your credit score, and they are not even an accurate representation of your financial decisions. Have the errors corrected, and your credit score could go up.
Look for accounts that do not belong to you. Look for accounts that you have paid off but are still designated as outstanding on your credit report. Check that your creditors have consistently reported your on-time payments and not incorrectly reported late payments or failure to pay.
Create a Budget
If you have a low credit score, you likely have made poor financial decisions. The last thing you want to do is take out a loan that you can’t afford to repay. This will only continue to lower your credit score further, putting you in a worse financial position.
Total up your monthly income and expenses. Then determine what you want to use the personal loan for and if this affects your monthly expenses. You can then calculate how much you can afford each month.
Get Pre-qualified
When you apply for a loan, the lender will perform a hard pull on your credit report. This temporarily lowers your credit score and becomes a note on your credit report for the next two years. Instead of doing this, look for lenders that will pre-qualify you.
This works well for small personal loans for bad credit because you know the likelihood of approval without having to do a hard pull on your credit report. A soft pull on your credit report lets the lender pre-qualify you while not putting a credit pull note on your report.
Ask Someone to Co-Sign
If you struggle to secure a personal loan with decent terms, consider asking someone to help you. Lenders may not be willing to lend to you but will become more willing when you have someone co-sign. Look for someone that you trust and who has a strong credit score.
Be aware that who you ask may be wary of agreeing. When an individual agrees to be a co-signer, they agree to be responsible for the loan should you fail to repay it. This failure of payment can also negatively impact their credit score.
Consider a Secured Loan
Some lenders may not approve an unsecured personal loan. You may find better terms if you can secure the loan. You could back the loan with an asset that you own, such as a house or car.
This is called collateral. The lender will offer the loan based on the value of the collateral. However, keep in mind that if you fail to repay the loan, the lender will take possession of the collateral to recoup their money.
Compare Lenders
Some lenders offer better rates if you are willing to work with their special terms. For example, some lenders specialize in lending to borrowers with low credit scores by adding additional requirements that reduce their risk. They will offer better interest rates and terms in return for these additional requirements.
For example, you could agree to automatic payments. You would connect your savings or checking account to your loan. Then the lender will automatically take out your monthly payment for you.
Alternatively, be wary of predatory lenders and hidden costs. Some lenders specifically target individuals with poor credit scores. They will offer a low introductory teaser rate and then dramatically increase the interest rate later on in the loan.
Don't Take On Other Debt or Credit
If you are trying to get a loan, you should not try to do other things that require credit. You should not take out a new credit card. You should not try to buy a car or house.
Lenders do not want to see you leveraging yourself beyond your repayment ability. If you are seeking more credit and financing, lenders will worry that you won’t be able to pay back the personal loan.
Gather Your Documents
Be ready for your personal loan application by gathering your financial documents. Lenders can ask for documentation to verify your financial status. Having these documents ready can speed up the loan application process, helping you to get your loan approved faster.
These are documents that you may need:
- W-2
- Pay stub
- Banking statements
- Social security number
- Proof of other income or financial accounts
- Car title
- Real estate mortgage or ownership documents
Get Approved With a Low Credit Score
If you need a personal loan and have a low credit score, the first step is to pull your credit report and review it. Then figure out what you can afford and get pre-qualified with potential lenders. Then you can compare loan offers and find the best personal loan and lender for your financial needs.
Start the personal loan process and fill out our simple request form.
