It may be a daunting task to get a loan approved if you have bad credit. However, the tips mentioned below will assist in increasing your chances of striking a deal with a lender to shell out some money to you.
1. Apply with a lender who does not use credit scoring
Most of the lenders use an automated system to calculate your eligibility for a loan. Such a system is called a credit scoring system and it takes into account your past credit score. The computer collects the data from your application and allots you a rating or a score. If you have a poor credit history, then you are certainly going to be ignored by such a system and be labeled as a “bad risk”. Your application will be declined even before a real person gets to read it. Hence in such a system you lose out on the chance to explain your bad credit and the reasons behind it.
One simple solution to such a situation is to apply for a loan to a lender who does not use such an automated system. Here you will get a chance to explain the circumstances that lead to a bad credit in the past. Your case will be evaluated by a real person who will use the information on your application as well as interact with you to decide on your request of finance.
2. Avoid mortgage insurance
If you are applying for a home loan, you will have to seek two approvals in case you wish to borrow more than 80 % of the property cost. One of them is from the lender and the other is from the mortgage insurer who shields the lender in the case of a default by you. If you can avoid assessment by the mortgage insurer, you can raise the chances of your loan getting approved. You can do this by accumulating a little over 20% of the property cost so that you do not have to borrow more than 80% of the cost from the lender.
3. Demonstrate that you have improved your financial situation
If you have had a bad credit in the past, it’s time now to improve it or at least show that your situation has improved. You need to impress the fact that you are back on track now and your financial condition has improved. You can do this by submitting proofs of timely payments of all financial commitments such as credit card bills, rent and other utilities. A bank statement showing regular savings will also help.
4. Apply to a specialist lender
There are a number of specialist lenders in the market beyond mainstream lenders who would be ready to finance a loan to you. Mainstream lenders are bound by certain guidelines of their organization and are hence more rigid in approvals than specialist lenders. However, such specialist lenders will price their products based on the degree of risk that they anticipate. They usually charge higher interest rate but one way to get out of their clutches is to switch over your loan to a mainstream lender once your credit improves.
5. Seek professional advice regarding your credit report
There are several credit repair agencies that would be more than happy to advise you on improving your credit report. They can suggest various instruments by which you can solidify your financial standing in the eyes of the lenders. It is also a wise option to speak to a solicitor to explore the chances of getting the adverse remarks in your report expunged.
Another major issue to keep in mind is that every time your application is rejected, it further drags down your eligibility for a loan because such a decline is recorded in your credit history. It is therefore important that you avoid rejections from lenders. This can be accomplished if you avoid making written submissions to each and every lender that you visit. Instead of submitting an application, make verbal inquiries and shop around in principle only. Submit an application only once you get hopeful of making a breakthrough.
It is a good idea to take the advice of a mortgage broker while selecting a lender such brokers have best knowledge about the modus-operandi of lenders and they can best guide you to a lender who can grant you a loan. These 5 ways to get loans for bad credit can prove very useful in getting you some money in times of distress. Follow them in letter and spirit and you shall certainly find a suitable lender for yourself.