Bad credit does not lend a helping hand when it comes to financial endeavors. For people who are looking to consolidate their debt, get approved for an apartment, open utility accounts or have their car insured, their bad credit is crippling.
Credit challenges affect your life in more ways than you may realize. A low credit score automatically puts consumers into a high risk sub-category; one that comes with much rejection and sky high interest rates. Say goodbye to what was once known as predatory practices (most often linked to payday loan lenders) and say hello to an expensive way of life. It is unfortunate that these high interest financial practices tend to be associated with credit challenged households. Individuals must improve their credit scores or high interest will linger throughout money matters. Don’t think you cannot improve your situation. On the contrary, there are other options but you must scope them out carefully.
Carefully read unsolicited credit card offers
Credit card companies are notorious for sending out what they call ‘pre-approved” credit applications. There are low interest rates publicized on the envelope and entice potential customers into reading further. Most often there are asterisks located next to advertised rates. The print is pretty small and the print even smaller when trying to find the information it refers to. If you look closely somewhere on the back of the offer (or oftentimes deep within pages or terms and conditions), you will find a confusing explanation. Don’t ever assume that if you fit into the sub-prime category that you have hopes in receiving the low interest rate on a new card.
Applying for one of these cards does not guarantee approval. What it does guarantee is that one more creditor had permission to look into your credit history taking away a point or two on the way out. That’s right, hard credit checks will drop your already sub-prime score. If you are approved and you do receive one of the lower interest rates, make sure you understand how long the introductory rate will last. Once rated increase, they will affect any previous balance.
Try different avenues at your bank or credit union
A personal loan may get rejected based on your credit score, but you could qualify for an equity loan or a loan guaranteed by a co-signer. It’s important that you know the repercussions of a secured loan and how a default could affect the ownership of the home, car or the credit of your guarantor. Make sure you try a credit union; their loan practices are not as tight as a bank as they work for their customers rather than for big industry profit.
Peer to peer (P2P) lending is a somewhat new money service which entails people investing their money into a loan pool. When borrowers apply for the money, investors have the final word as to who receives their money. Applicants are screened and go through credit checks. Someone may have a very low credit score but an investor may be empathetic to their personal story and select them for funding. P2P lending gives a bit more leeway than typical banks or credit unions.
Individuals can also find alternative online money in the form of payday loans, title loans and even pawn loans. The Internet has increased the convenience of high-priced fast cash. Financiers will never recommend these types of loans as they are often seen as overpriced debt traps. Oftentimes, these avenues do turn out to be financially fatal but some borrowers find them successful. Examine your accounts and future spending needs carefully before you sign the dotted line for a high interest short-term loan.
Keep financial matters close to home
You may have a friend or family member who will be willing to float you a loan. If you are one of the lucky few who do, treat their offering professionally just as you would any other lender. Write down the terms of the loan - payment schedule, interest or fees agreed upon by both parties and any consequences for failure to make payment. Use a legal promissory note as a binding contract. Don’t forget that a relationship is at stake as well.
Work at rebuilding your credit one month at a time. Evaluate your plan at the end of each month and adjust as necessary. Your goals should entail not only making on-time payments with current bills, pay off debt, cut back on expenses and save for future needs.