If you have a bad credit record, you might find it difficult to take out a loan, especially a bank loan. Despite what you might have seen on an ad some highway billboard or an internet popup, bad credit significantly reduces your chance of getting a loan. Worse yet, it may prevent it entirely.
Any lender can and will access your credit history to check you out while evaluating your loan application. This is a simple process because your record for paying your bills is available from a credit bureau. Credit bureaus collect payment data on the financial obligations of virtually all consumers in the country and analyze it using a sophisticated algorithm to produce your credit score. They know about everything you charge to your credit cards, your utility bills, your phone and internet connectivity, your mortgage or rent, your parking and speeding tickets, tax assessments, municipal licenses and fines, and if you’re divorced, even your alimony payments. The more bills you ignore or don’t pay on time, the lower your credit score and the chance of getting a loan will be.
Credit scores are expressed as actual numbers. Most range from 300 to 800. Lenders tend to consider anyone with a credit score of less than 620 to be a risk though this threshold may vary.
Looking at it from the point of view of the lender, this makes perfect sense. Why should a bank, credit union or other financial institution take the risk of loaning money to someone who has shown he or she might not be able to repay it on time? Or at all? They naturally view a low credit score as high-risk. This stringency was reinforced by the newindustry regulations and tougher internal controls adopted in the wake of the Great Recession.
That’s actually easy. Federal law requires credit bureaus to enable consumers to obtain free copies of their credit scores once a year. Take advantage of that right by applying for yours. Then review it carefully. Credit bureaus are not prone to make mistakes, but they are known to happen. If you spot a mistake on your report, challenge it. You will be obliged, of course, to provide documentary evidence that contradicts the mistake you are challenging. But if you do and your challenge is accepted, your credit score may have to be adjusted up as a result.
Since credit scores are updated regularly as the data is processed, be prepared for the consequences if you are having problems in paying your bills.
The first sign your credit score has fallen is receipt of a notification from the credit card company that it is raising the interest you pay. If you have overdraft protection on your checking account, it may suddenly be withdrawn. You may also be rejected if you apply for a cell phone from a different operator than the one you are currently using, or denied a mortgage or even a lease for an apartment. If this doesn’t happen immediately, you it will eventually catch up with you sooner than you might suspect.
Thankfully, the answer can often be “yes.” One such option is the short-term installment loan. While your credit score may be routinely checked after you apply, what determines the decision to grant you a short-term installment loan is your ability to repay it according to a pre-determined timetable. Your ability to do so is based on your salary and expenses, not your credit score alone.
To a certain extent, that’s due to new technology developed by fintech (sometimes rendered as FinTech, a neologism formed from the words “financial” and “technology”) companies, which are developing innovations for the financial services sector that are outpacing traditional credit bureau algorithms. Instead, they use a combination of their own proprietary algorithms and big data analytics to determine a customer’s credit worthiness. The result is a prediction of a consumer’s ability to pay back a loan that is independent of credit scores. Short-term installment loan providers have been among the first to deploy these new fintech solutions. Armed with the additional information that fintech is capable of providing, they can exercise greater flexibility than banks and more traditional financial institutions.
Apart from enabling someone with bad credit to stay afloat, the benefit of the short-term installment loan is that it might allow you to gradually repair your credit score. Every time you take out a short-term installment loan and successfully repay it, your compliance should be noted by the credit unions providing the lender reports your payment history to them. In the long run, your borrowing and repayment can help repair your credit score and rehabilitate your financial health.