Getting loans can be a challenge when you have a bad credit score. Lenders look at your credit score to determine your creditworthiness and evaluate if you can pay back the loan. Of course, there are a lot of factors they will check on you for your creditworthiness, but the main thing they will look at is your credit score.
Fortunately, even if you have bad credit, there are still some types of loans for you that you can get. You can use some of them to build or improve your credit score. However, you have to watch out since some predatory lenders are out there, so make sure you do your research first. With all that said, let’s review some of them.
A personal loan can affect your credit score in good and bad ways. Taking out a personal loan in and of itself isn’t a negative thing for your credit score, but if you mishandle it, it will make your credit score look much worse.
On the other hand, taking out a personal loan can help you improve your credit mix, which is an essential factor when computing your credit score. Your credit mix refers to the different types of loans or credit accounts, like installment loans, credit cards, mortgages, etc. Also, your credit mix makes up 10% of your whole credit score, so having different types of credit can help you greatly.
While having different accounts for each type of credit isn’t necessary, it shows your lenders that you can manage your credit mix efficiently. We want to emphasize “efficiently” here because even if you have a good credit mix, if most of them defaulted or mishandled, it will be irrelevant.
You can improve your credit score by handling your debts, such as your personal loan. So no matter how big your loan is, be it an $800 loan or a $15,000 loan, you can improve your credit score by always paying on time until the entirety of the loan is paid off.
Car Title Loans
Car title loans are short-term loans that allow borrowers for financing even if they have a bad credit score. This is because lenders are more willing to let borrowers take out a loan because they are putting up their cars as collateral, hence the name of the loan.
Car title loans are typically meant to be repaid for 30 days or less, with 25% to 50% of the car’s value as the loan amount. However, some lenders have triple-digit APR, so you might want to check out the lender before getting a car title loan.
Since it needs no credit check, getting a car title loan negatively affects your credit score, especially if you default on it. Also, another risk that you’ll be having is when you aren’t able to repay the loan itself, your car will be repossessed by the lender.
If you’re a business owner looking to get a business loan, it might just be the thing that can improve your credit score. Of course, if your business can pay the loan on time and in its entirety, your credit score will improve because of the payments you make.
But on the other hand, if your business defaults on a loan, your credit score will also hit. In short, if you personally guarantee a business loan or any funding you give to your business, it will affect your credit score depending on how you handle the loan.
Credit-builder loans are typically available in most financial institutions. When you get a credit-builder loan, the money you got approved to borrow will be deposited in a bank account that the lender holds.
You will then pay for both the interest and principal amount, which are, of course, reported to credit bureaus until you repay the loan in full. After that, you will get to have the money you borrowed. This loan is great if you’re looking to better your credit score while building a little nest egg.
If you’re still paying off your student loans, you can use them to improve your credit score. Of course, you can also do this by paying for it on time. Student loans also help you by diversifying your account mix and boosting your average account age. This loan is also very helpful when trying to build your credit score at a young age.
These are just some of the loans you can use to improve your credit score. Of course, since their loans, how you handle them will impact the state of your credit score. That said, make sure to always pay on time and wait until the loan is paid in its entirety, and eventually, your timely payments will be reflected on your credit score.