When you’ve got bad credit, it prevents you from enjoying many luxuries in life. It becomes challenging if you’re trying to apply for a credit card, a loan, or purchase an asset. Having bad credit can become a roadblock to many opportunities.
If you’re trying to apply for a loan and have bad credit, you must be able to support your case in other ways. Lenders will consider different aspects if your credit history isn’t the best.
What Causes Bad Credit?
You may be doing many things that influence your credit score. Actions you have taken in the past or are currently subconsciously doing can play a negative role in your life.
Defaulted a Loan – If you completely stop paying a loan, your credit will suffer significantly. Leaving an unpaid debt can lead to high-interest charges or being sent to collections. Once your account is sent to collections, the damage done to your credit score is irreversible for a long time.
Missing Payments – Are you making payments on time? You may not realize it, but expenses like your phone bill or gym membership influence your credit score. It’s crucial that you make these payments on time since they affect your score. If someone has a phone line under your name or plan, you must ensure they make their payments on time.
Too Many Inquiries – Each time you apply for a credit card or make a large purchase, your credit score is checked. The more hard checks are made, the lower your score drops. Each inquiry requires the company to contact a credit bureau, which is noted in your credit report. If you continuously face rejection, your application goes to waste.
Credit Usage – Maintaining a balance between your credit card usage and payments plays a significant role in your credit score. For example, if you use 60% of your credit, your credit score will drop very low.
It’s suggested that you keep your credit card balance below 30%. The lower, the better it is for your score.
Inactivity – Not having any credit activity for an extended period can result in a lower credit score. To maintain a good credit score, you must be consistent with your credit usage. This will show credit bureaus that you can manage your credit while using it and simultaneously paying it off.
How to Achieve Good Credit?
Monitor Your Payment History – Do not skip payments at any cost. Try to make your payments on time, and at least make the minimum if you cannot completely pay off your bill. If you’re unable to make the payment, contact your lender beforehand to rearrange the payment date.
Use Credit Wisely – Do not exceed your credit limit if you’re trying to maintain a high score. Going over your set limit will show the lender that you’re not capable of paying your bill and cannot spend responsibly. Try to keep your credit usage below 30% and manage your expenses based on your monthly income to avoid overspending.
Limit Your Credit Checks – Refrain from undergoing too many credit checks and applications. Each hard inquiry appears on your report and influences your score. If you know your credit score is already low, try not to submit an application requiring a credit check.
Use Different Types of Credit – If you’re only using one form of credit, it may be more difficult for you to maintain balance. Try using different types of credit to not max out on one and spread usage equally.
You can use a credit card, line of credit, or personal loan to distribute your credit usage. A mix of credit usage can improve your score.
What Do Lenders Look For When You Apply For A Loan With Bad Credit?
If you have bad credit, here are other things lenders will consider when accepting your application.
Business Plan
Assume you are applying for a business loan instead of a personal loan. If you’ve got bad credit, a business plan can help you convince lenders of your intentions. You might be able to convince them how you can turn it into a profitable business.
Your business plan is a formal document that should consist of multiple details on how you plan to use the loan. Showing the lender why you need the extra funds and the chances of creating a successful business will reassure them before lending you money. The goal is to convince the lender that the money will not go to waste and you’ll repay the loan by growing your business.
Personal Guarantee
Believe it or not, your personal guarantee plays a role in convincing a lender to loan you money. If your business fails, the personal guarantee assures the lender that you take responsibility for paying back the loan. This way, you are legally signing a contract that binds you to the agreement and increases the chances of the lender approving your loan.
Collateral
Having any form of collateral is a huge advantage, especially if your credit isn’t the greatest. Collateral is referred to any assets you may own. An asset can be a car, home, or equipment. In case you default on the loan, the lender will seize your collateral. It plays a supporting role in your application process because if you cannot repay the loan, whatever value your collateral equals, will cover the loan.
By providing collateral, the lender gets assurance that there is a backup to recover the loan. This is a secured loan because you give the lender security when applying. The lender will feel more confident when lending you money, knowing there are other ways to make up for the money they have given you. Presenting collateral to a lender will significantly increase your chances of approval because it holds high value depending on the asset.
Conclusion
Having bad credit can put you in a terrible position and ruin your chances of quickly getting a loan. By following these steps, you can strengthen your application to present your case in a better light to the lender.
For those who want to avoid a complicated application process and need fast money, Lendee is there. It is a micro-lending platform that helps all obtain microloans in a much simpler way. Whether you need as little as $100 or as much as $2000, Lendee supports all types of applicants.
The benefit of Lendee is that your credit score will not stop you from obtaining a loan. Lendee allows everyone regardless of their credit standing to apply for a loan. You also do not require collateral, and the chances of approval are better.
Once you raise a microloan request, Lendee shows it to a vast network of lenders, who’ll be willing to loan you money. It is up to you to choose who you want to borrow from. You have the option of discussing a flexible payment plan with the lender if you decide to move forward with them.
With Lendee, you can improve bad credit by making loan payments each month on time. It is because the Lendee microlending platform reports your payment activities to the credit bureaus.
Lendee is one of the best money-borrowing apps to obtain money quickly from the comforts of your home. To learn more, you can visit lendee.com
