In the United States, the average credit score is 704, which is considered good.

Unfortunately, 19 percent of the population has a credit score that falls below the 600 mark.

If you have bad credit, you might be struggling with getting a loan or obtaining a reasonable interest.

In this article, we’ll go over how to get a loan with bad credit.

Get a Copy of Your Credit Score

Are you sure your credit is bad? It’s one thing to think you have bad credit and another one to actually have it.

If you’re not sure your credit is actually bad, you need to obtain a copy of your credit score. Although there are different credit companies, the FICO score system is one of the most commonly used by creditors.

It’s important to learn where your credit score falls:

  • Very poor: 300-579
  • Fair: 580-669
  • Good: 670-739
  • Very good: 740-799
  • Excellent: 800-850

Before you decide you have bad credit, you need to see where your credit falls on the scale.

Learn How Your Credit Score Influences Interest Rates

When you have a low credit score, you might think it will be impossible to get a loan. However, having a low credit score won’t disqualify you from getting a loan.

Lenders will take a look at your credit score and decide on the interest rate they can offer you. The lower your credit score is, the higher the interest rates will be.

Not all lenders have the same criteria. If your score is low, make sure you try several lenders as a way to shop around for the best interest rate.

Take Steps to Fix Your Credit

If you have bad credit and you want to get a loan, don’t settle for one with a high-interest rate. Just because your loan has a high-interest rate, doesn’t mean you cannot change it.

There are a few easy things you can do to try to improve your credit score like paying your bills on time. Reducing the number of late payments in your credit history will boost your numbers.

Another way you can improve your credit score is by paying down your credit card debt. Ideally, you want to use less than 30 percent of your credit limit. Until your credit score improves, try to only use cash.

Figure Out Your Debt-to-Income Ratio

Before lenders decide if they will approve you for a loan, they want to calculate your debt-to-income ratio. Most lenders prefer their clients’ debt-to-income ratio to be 35% or lower.

This means they don’t want more than 35% of your income to go into paying your debts. To get an idea what your debt-to-income is, take all of your monthly payments that go towards your debts and divide them by your monthly income.

If your debt-to-income ratio is lower than 35%, it might make you a more attractive candidate to lenders.

Try a Credit Union

When you have bad credit a great choice of lender is a credit union. Because credit unions are not-for-profit, they’re more willing to take applicants with bad credit.

Credit unions also offer lower interest rates to lenders. Most credit unions tend to cap their interest at 18 percent, so you can be sure you won’t have to pay an exorbitant number.

Having a poor credit score won’t cause a credit union to turn you away since they tend to consider your entire financial history.

Get a Co-Signer

If you want to secure the lowest interest rate possible but your credit score is low, you could always consider getting a co-signer.

Before you go the co-signer route, you need to make sure the person not only has good credit, but they also trust you.

This is an agreement that you shouldn’t take lightly. Your co-signer will be as responsible for the loan as you are. This means if you fall behind on the payments, their credit can suffer too.

Look Into a Secured Loan

To most lenders, applicants with bad credit are considered a risk. There are a few loans that are available for people with bad credit and secure loans are one of them.

If you’re willing to put down collateral such as a home, car, or anything of value, you can qualify for a secured loan. Lenders don’t want to take the risk without having something of value to back up the loan.

Unless you want to lose your house, car, or whatever you put down as collateral, you need to keep up with your loan payments.

Go the Home Equity Loan Route

If you develop bad credit after buying a house, you can always try to dive into your home equity.

Unlike other loans, home equity lenders won’t take your credit score into account. If your home has equity, you can take out the loan.

Most home equity loans you can take out for up to 30 years. Not to mention, the interest you pay towards this loan is tax deductible.

Unfortunately, it does mean you will have to put your house down as collateral. Defaulting on your home equity loan could mean your house is on the line.

Try Online Lenders

Since large banks are often subjected to more rules and regulations, they might not want to take a risk with someone with bad credit.

Online lenders, on the other hand, often take the risk with people with a poor credit score. For most online lenders, you only need to prove you make sufficient money from your business or employer to be able to pay the loan back.

There are some online lenders that offer instant approval without needing a credit check.

If you decide to go for an online lender, make sure you do your research and compare interest rates and fees.

How to Get a Loan With Bad Credit: The Bottom Line

Now that you know how to get a loan with bad credit, it’s time you take control of your credit score.

If you want to get a loan you can try an online lender, a secure loan, home equity loan, or even get a co-signer.