If there is a surprise to the concept of loans with bad credit, it is that individuals who are under severe financial pressure can be entrusted with handling yet another debt. For all intents and purposes, issuing a loan to anyone that is already struggling, suggests that the most likely outcome will be a defaulted loan.
However, this is not how lenders see it. Even the traditional lenders like banks and other branch structured financial institutions will be able to look favorably on an applicant even if they have a bad credit score. The truth is that loans approved despite bad credit are done so with a very definite strategy in mind.
For example, it is generally understood that applicants in financial difficulties will seek loans for personal use in order to alleviate their existing situation. By getting their hands on extra funds, they can clear credit card debt, consolidate existing loans and generally improve their lot.
Credit Scores Explained
The credit status of an applicant is never simply forgotten about, but there can be contributing circumstances that indicate the problems were not their fault. In this light, approving a loan with bad credit is not such a big risk at all.
Over a period of time, as payments for existing loans and credit cards are missed or delayed, the credit score begins to fall. Loans approved despite bad credit can be used to catch up on payments, thereby improving the ratings a little. With such a clear purpose, to name them loans for personal use is perhaps a little misleading.
Credit Scores Calculation and Assessment
The method by which the scores are actually calculated is a bit complicated. It includes such factors as the payment history on all accounts, whether they were made on time and whether the minimum was only ever paid. For loans with bad credit, this can indicate firstly whether there might be trouble sticking to the schedule and whether the principal might be repaid early or not.
If a loan is approved despite bad credit, it is a good idea to try to repay it ahead of schedule as this will go further to improving the score in the end. As far as the lender is concerned, repaying any loan for personal use without a blip is great, but clearing the loan early shows positive intention.
Other factors include the length of the credit history, and whether a long or short pattern of poor repayment habits exist. If the pattern is short, with an earlier history that is impressive, lenders will know that approving a loan with bad credit is likely to be the right decision.
Also, the credit utilization ratio, which refers to the percentage of the credit that is being use by the applicant, is important too. Of course, loans approved despite bad credit usually go to those who have no outstanding court judgments against them, though this is not necessarily set in stone either.
In essence, it is possible to get loans for personal use even with a credit score as low as 300, with anything over 600 reckoned to be a good rating.
Non Credit Score Factors
Getting a loan with bad credit depends on more than just credit rating, and there is one extra factor that really matters, namely job stability. After all, a regular income is necessary to make repayments. The salary needs to be sufficient, of course, but this can be proven by producing copies of any pay slips.
This factor is key to having a loan approved despite bad credit, as it gives a clear and positive indication that payments can be made over the term of the loan. A modest sized loan for personal use is easily accepted if this crucial form of security can be provided.