Having poor credit diminishes oneâ€™s ability to procure a loan and also renting an apartment or landing a job etc. People with poor credit have low credit scores. A credit score is a number that lenders (banks and credit cards etc.) use to identify the risk element of lending money to you. The standard credit score is called FICO score, named after the Fair Issacs Corporation which created this.
- Credit score usually range from 300 to 850; the higher your score the better is your credit. Credit scores are determined by factors such as:
- Payment history – Lenders see how consistent you have been in previous loan repayments.
- Outstanding amount – Those carrying a lot of debt are considered risky and is less likely to pay back new loans.
- Length of credit history – If you’ve been a long time borrower and a responsible one, the higher the score.
- Types of credit in use – Credit cards, personal loans, mortgages etc are the kind of credit a person may already have.
- New credit – Your credit score may lower if you apply for too many loans within a short span of time.
The obvious solution to having poor credit is to improve your credit score. This automatically qualifies you to apply for a wide variety of loans. Improving oneâ€™s credit score, albeit being the optimal solution, takes time. In the meantime, those with poor credit can seek loans from:
- Credit unions – As credit unions are smaller entities compared to brick and mortar banks, they look into overall situation while assessing your loan eligibility. Credit unions usually have lower fees.
- Online lenders – Borrowing from an online lender lets you compare rates and fees from multiple sources thereby letting you make the best choice. The requirements to qualify for a loan from an online lender is also few as compared to others.
- Peer to peer lenders – These are actually lending networks and they are currently growing in a exponential rate. These networks offer varying interest rates as compared to the traditional banks.
- Friends and family – Having a poor credit score means many major lending institutions will not offer you a loan. Borrowing from friends and family has almost nil requirements and fees!
In the long run, it’s advised to build oneâ€™s credit to reach an acceptable score. To do that, always ensure that your bills are paid in time. Revolving debt like credit cards have an higher impact on your credit rating, always have a clean balance on your credit cards. However poor your credit score is, it can be fixed by taking conscious decisions regarding your finance.