Guaranteed Approval to Bad Credit Loan – What is Bad Credit?
Bad credit loans are loans offered explicitly to individuals who have a bad credit score. A credit score is a rating of your creditworthiness. A bad credit score is a reflection of a borrower’s credit history and poor financial decisions, which is why lenders use this as a golden standard to assess borrowers’ eligibility and risk of acquiring a loan. The credit scoring ranges between 300 to 850, where 300 is a bad credit score, and 850 is an indicator of a good credit score.
Securely acquiring guaranteed approval loans with bad credit loans isn’t a challenging task; you simply need to know which bad credit loan works best for you.
What Contributes to a Bad Credit Score?
Credit scoring is a task assigned to major credit scoring companies. Each credit scoring company has its criteria of what makes up an individual’s credit score, known as the credit scoring model. Some of the most common consideration includes;
- Payment History
Payment history on your credit report makes up 35% of your credit score, which is why it is the most crucial element that needs to be taken care of vigilantly. To ensure a good payment history, one has to pay all due to their creditor in time. Any delay in payment is marked in payment history as a negative.
- Amount Owed
The amount owed does not necessarily include your overdue payment but is an overall indicator of the total sum you have taken as a loan. The higher this value, the likely the chances a creditor may not approve your loan request. The amount owed makes up 30% of your complete credit report.
- Length of Credit History
A credit history length (15%) is reflective of your total reliance on credit, how often you’ve borrowed credit, and how often you’ve paid off credit dues. The beginning of your credit history is marked by using your first credit card or acquiring your first loan.
- New Credit
New credit shows a lender how many times a hard inquiry has taken place against your credit. A hard inquiry occurs each time you apply for a loan or a credit card. In your credit report, new credit makes up about 10% of your data.
- Credit Mix
A credit mix provides background as to how many types of credits you’ve acquired and the types of credit accounts you have; these include loans, credit cards, and mortgages, amongst others.
Steps Involved in Acquiring a Bad Credit Loan
Acquiring a bad credit loan may seem impossible, but with the right amount of research and adequate knowledge, you’ll surely find one that suits you. This often isn’t the case with traditional loans. Here are the step-by-step instructions on how to acquire a bad credit loan;
- Checking Credit Score
If you are a US citizen, you are eligible for a yearly free credit check; this credit check can be availed once every year and will allow you to assess your chances of acquiring a loan.
- Evaluating Repayment Criteria
Every lender has its terms and conditions on repayment of the loan. When you sign for a loan, it is your responsibility to read through the necessary points highlighting the criteria of repayment, including the interest rate and date at which payments are to be made.
- Comparing Loans
It is a wise decision to broaden your search before you settle for a loan, this way, you’ll ensure that you get the best deal (which is a low repayment interest rate)
- Assess Chances of Acquiring Secure Loans
Most creditors provide loan-seekers with bad credit history a chance of acquiring a secured loan. These loans offer the advantage of obtaining a loan at low APRs. The application of a secured loan calls for signing collateral, which involves keeping your car, house, or any other valuable security for loan repayment.
- Collecting the right Documentation
Once you’ve done your research and decided on applying for a particular loan, you can speed up the process of acquiring the loan by preparing all necessary documentation beforehand. Documents that will be required by the creditor include
- Proof of citizenship (Social security number)
- Details of active bank account
- A valid email address and contact number
- Proof of employment
- Credit report (not required by all creditors)
Making the Right Choice of Selecting the Right Creditor
When settling for a bad credit loan, it is essential to note that no two creditors are the same, nor are their criteria. Hence you should do your research and settle for one that best suits you. Here are some tried and tested ways of knowing which creditor you should settle for.
- Eligibility Requirement
Every creditor has its requirement for providing a loan. Most look at your monthly income, credit history, and income-to-debt ratio.
- ARP and Other Costs
Knowing the ARP associated with your loan repayment is essential; it will allow you to decide on signing a loan with a creditor based on how easily you can pay back the loan.
- Terms and Conditions
Specific terms and conditions are kept in place by creditors to reduce risk when providing bad credit loans. These terms usually involve a fixed date at which payments are to be made and the amount you’ll be repaying monthly (if the installment is settled on).
- Choice of Creditor
A creditor is not always the bank to whom you request for a bad credit loan, other types of creditors include;
- Online lenders: Online creditors offer bad credits on fewer requirements.
- Credit Unions: Are more inclined to offer loans based on a past relationship.
- Personal Creditors: include your friends, family, and close relatives.
Watching Out for Bad Credit Loan Scams
Scammers are present in every situation involving vulnerable individuals, which is why you must watch out for certain red flags such as;
- Guarantees of loan approval with zero checks. Every creditor performs some form of credit check; if they don’t, it’s most likely a scam.
- Fishy advertising, this includes poorly worded and designed banners.
- They ask for prepayment before acquiring the loan.
- Websites with expired or absent SSL certificates and those that do not begin with “https.”
- Absence of state registered license and address on their website.