It seems like a universally known fact that one’s credit score is the key to their options of borrowing money through loans. However, experts and some borrowers know that the credit score system, like almost any other system, comes with its own pros and cons and it has its own limitations and flaws. Apart from that, the market also needs to accommodate people with poor credit scores as they could still be in need of loans. And yes, today’s market does have answers – there are solutions available out there, that help borrowers get loans despite poor credit scores.

Here, you shall find a quick round up of the options and how best to utilize them. As a bonus, I share a few links to a successful service that my acquaintances have used during a time of need.

Credit Score & How Bad is bad?
If you’ve landed on this article, you probably have a clue about what credit score is, so I shall just share a simplified definition of it in a way that a reader of this article can use to understand it. Credit scores are maintained in most countries for all adults. These are scores maintained via tracking credit-related transactions which aim to represent the credit health of an individual that is used by lenders, employers, insurance companies and a few other entities, to understand certain aspects of your financial health. A person’s FICO credit score would range between 300 and 850, with 850 being the highest credit rating possible. FICO is the most widely used credit rating. Simplest ways to maintain good credit scores is to repay debts on time and to utilize smaller percentages of your credit limits.

FICO Credit Score FICO Rating
800-850 Exceptional
740-799 Very Good
670-739 Good
580-669 Fair
300-579 Very Poor

If your credit score is in the “Fair” range, most loans would start to get expensive – the interest rate quotes you receive shall be on the higher side. Personal loans may be harder to get than home loans and car loans.

If you hit the “Very Poor” range, it gets much more difficult. Most loans are not available to you. In most cases, non-bank direct lenders, some very short term loan apps and credit card loans (only from pre-existing credit cards) would be your only options. Since the product offers of very short term loan apps are less tested, fairly new options which can be lesser reliable and very expensive, I am avoiding them for now. I believe that the market is yet to gain more experience with those services before they become worthy of a fair mention.

Do understand that a borrower’s credit score is a reflection of how safe it is for the lender to offer you a loan, which is why all loan options available to a low credit score holder tend to be rather expensive.

That said, let’s dive a little deeper into the comparison of the two more reliable and established options.

Bad Credit Direct Lender Loans vs Credit Card Loans

Bad credit direct loans are the more popular loan product amongst the two, and chances are that you’re easily eligible for one. However, that benefit does not come without a cost. Non-Bank direct lender loans include products like installment loans, cash advances and payday loans.
Typically, these are all short term personal loans which can be used by borrowers in emergencies. They’re available through lenders reachable through mortgage brokers or directly online as well as in pawn shops. Cash America Today an example of a prominent direct lender of cash advance loans for bad credit score, based in the US. In terms of APR, that is one way to measure the cost of a loan, this sort of a loan tends to be expensive. However, in the US, direct lenders of such loans do not use compound interest on their loans and this makes it easier to understand how to manage one’s expenses.

Credit Card loans for bad credit score holders are not easily available. Firstly, you’d need an active credit card which is not expiring in the next few months. Secondly, there are some services that still check our credit score before approving the Credit Card loan. The interest rate on such a loan is likely to be lower but it is compounded so in a longer term, it may be adding up to a larger amount of repayment in total.

How to Get a Direct Lender Loan Safely

Direct Lenders tend to have flexible loan options on offer. Some are attractive, some are expensive but some might be too good to be true and these are the ones you need to beware of. While choosing to take a loan from a non-bank direct lender, it is important to know that your lender is legitimate.

Here are some signs to look out for:
1. Online presence: the lender should have a secure website and some good reviews online
2. Deposit/Payment: legitimate loan lenders wouldn’t ask you to pay or deposit money to get a loan or apply for one
3. Suspicious Offers: Some lenders or websites can claim to make offers like first month free, etc. Be informed that these are likely to be misguiding or illegitimate offers/lenders
4. Asking for irrelevant personal information or passwords: A direct lender shall need your bank details, name, address, SSN, salary slips and some other related information that seem relevant to a loan. What they do not need is a prepaid credit card number, account passwords, your bank customer ID and other information that can jeopardize your financial safety. Some scammers do pose as direct lenders to gain access touch information from people
5. Contact Details and Address: Direct lenders that are registered and accredited would reveal valid contact details on their website or in their shops
6. Registrations and Accreditations: Look out for security certifications on the website, accreditations like BBB (Better Business Bureau) and registration details of the lender to be sure of their recognition as a legitimate lender.

How to Work on Your Credit Score?
I assume you read all the till here because you or someone you wish to help, has a bad credit score. The good news is that this can be changed over time and you don’t have to be rich to change it. It just needs a little understanding of the system and the work can begin! So let’s enlist actionable steps that can help improve your credit score.

1. Verify your Credit History: The system is not fool proof. Some details and transactions can go wrong and they do. So if you doubt that your credit score is low, request for a hard credit check and verify to see if all the transactions are tracked well and accurately. If not, filing a complaint usually solves the problem. In rare cases, one may need a consultant to help solve an issue.
2. Focus on What to Improve: Credit scores reflect your promptness of payments of bills and debts, percentage of outstanding credit that you avail, how many loan products and inquiries you’ve made for loans, how much of your available credit you use and how much of the outstanding credit is carried forward periodically. Whatever you may lack in, it’s a good idea to focus priorities on improving each that needs attention.
3. Reduce the Percentage Used, of Any Credit Product You Use: If you have the option to increase your credit limit or to distribute your debts across multiple products, doing so is useful for credit score improvements. The idea is to reduce the percentage of each credit product that you use, against the limit. For example, if two credit cards allow you to spend $10,000 each while you need to spend $6,000 in total, it is wiser to spend $3,000 on each card if possible. This is also a reason why closing credit card accounts is not a good idea when working on your credit score.
4. Take a No Hard Credit Check Loan: If you need a loan with a bad credit, applying for a loan with performs a hard credit check, will be detrimental for your credit health. A loan that does no hard credit checks can however, be useful.
5. Repay Loans on Time: Timely repayment of loans and due bills is essential when working towards improving one’s credit score.

If you happen to have a bad credit score and are in a need for a loan, I would suggest that a Credit Card loan is good if you have the option available to you. Do make sure you calculate how expensive it is, before you finalize this option. You may need an EMI calculator for this as Credit Card Loans usually tend to attract a compound interest which usually ends up being more expensive than it seems at first glance.

The other reliable option and the one that’s easier to be eligible for and quite often faster, is the online direct lender loan for bad credit score individuals. It is important to understand the service you choose and to know that your direct lender is legitimate. There are mortgage brokers out there who can help with this, but their services only add to the already expensive loans that serve individuals with poor credit history. So, as I mentioned, I am sharing the link of the service that an acquaintance of mine used successfully. You could check it out right here if you need money today – the service by CashAmericaToday delivers loans within a day.

Author's Bio: 

Novlik is an independent Commodities trader with 7 years of activity in the international market. Having traded futures of commodities and other markets including debt and forex, he felt the need to study the Finance industry closely and from the roots. He believes that the knowledge that can be gained in such a way, can differ significantly from what is taught in schools and universities. This drove him into being passionate about expressing and sharing his knowledge about various topics that he believes he may have learnt nuances of, that a course like an MBA might overlook quite easily.

Having an alternate profile of an independent musician, the need for marketing expertise helped him discover writing as a passion. Years of experience writing for his own profile and posts, he gained credible skills in expression while working on influencing people through creating advertisements and blog articles. He now uses his creative and expressive writing skills to expound his observations in the Finance industry, in whatever way it may be relevant to his understanding and insights, that he believes may someday benefit someone significantly.