How to Get a Loan with Bad Credit

Bad credit loans can be an option for you, but they don't come without risks.
Updated 23 May 2022
How to Get a Loan with Bad Credit
Sections on this page
  1. What is Bad Credit?
  2. Loan Options for People With Bad Credit
  3. 5 Ways to Get Bad Credit Loans
  4. How to Improve Your Credit Score
  5. Risks of Getting a Bad Credit Loan
  6. Frequently Asked Questions

Bad credit can make it tough to get a loan, but it's not impossible. Several options are available, whether you need help paying off high-interest debt, funding a significant purchase, or making home improvements.

According to a report by Experian, about 16% of Americans have a score no higher than a 550 FICO score. If you fall below this threshold, you have a poor credit rating, and the likelihood of a loan denial is very high. And if you're lucky enough to be approved for a loan, you'll have to pay higher interest rates than those with a better score.

If you have a bad credit rating, it can be difficult, but not impossible, to get a loan. This post will explain how you can get bad credit loans when you don't meet the minimum credit scores to get regular loans.

Before you apply for a loan, it's important to understand your credit score and what lenders will be looking for.

What is Bad Credit?

When a bank requests a credit check, credit reporting agencies like TransUnion and Equifax create a credit score based on your credit history and borrowing capacity. If the report is poor, it may result in the rejection of the loan.

Your credit can range from excellent to bad, but what exactly is considered bad credit? 

The highest score is 850, and the lowest is 300. If your score falls below around 620, that's generally considered bad credit. This score means that you're a higher risk to lenders, and as a result, they may be less likely to approve your loan or offer you a competitive interest rate.

Your credit score is calculated based on your credit history. This includes things like whether you make your payments on time, how much debt you have, and what kind of credit you have. 

Lenders use your credit score to determine how likely you are to repay your loan. The higher your score, the more likely you are to repay your loan on time. That's why having a good credit score is important. It can save you money in the long run by helping you get approved for loans and getting lower interest rates.

Credit Score Discrepancies 

Your credit score may be different depending on which credit bureau you use. 

The most common credit score is the FICO score, but you might also get a score from other credit bureaus such as TransUnion, Experian, and Equifax. Differences between credit scores can be caused by many things, such as the type of information each bureau uses to calculate your score.

Different types of loans also impact your credit score in different ways. For example, a mortgage will have a different effect on your score than an auto loan.

These factors can impact your score, so it's crucial to stay on top of your credit accounts to make sure everything is reported accurately.

Credit Scores Compared

Classification FICO Score Transunion Equifax Experian
Risky 250-579 - - -
Very Poor - 300-600 - -
Poor - 601-657 280-559 300-579
Fair 580-669 658-719 560-659 580-669
Good 670-739 720-780 660-724 670-739
Very Good 740-799 - 725-759 740-799
Excellent 800-850 781-850 760-850 800-850

Loan Options for People With Bad Credit

Think again if you feel like you have no options because of your bad credit. Some bad credit loans are available to people who've struggled with improving their credit.

The type of loan you qualify for will depend on several factors, including your credit score, income, and employment history.

Below are some loan options to consider if you have bad credit.

Unsecured Loans

An unsecured loan is a loan that doesn't require any collateral. Collateral is an asset, such as a car or house, that can be used to secure the loan. 

If you have bad credit, you might be able to get an unsecured loan from a lender that specializes in bad credit personal loans. These lenders are often willing to work with borrowers with a low credit score or limited credit history. 

However, if you default on an unsecured loan, the lender has no collateral to take. This makes unsecured loans riskier for lenders, and as a result, they often have higher interest rates than secured loans.

Secured Loans

A secured loan is a loan that requires collateral. The most common type of secured loan is a mortgage, but auto loans and personal loans can also be secured.

If you default on a secured loan, the lender can take your collateral. This makes secured loans less risky for lenders, making them more likely to have lower interest rates than unsecured loans.

A secured loan might be a good option if you have bad credit. The collateral you use to secure the loan can be used to offset the risk of lending to someone with bad credit.

Peer-to-Peer Loans

Peer-to-peer (P2P) loans are loans funded by a group of individuals rather than by a bank or financial institution. Loans are made through online platforms that connect borrowers with investors.

P2P loans are typically unsecured, so they don't require any collateral. As a result, they may be a good option for borrowers with bad credit.

P2P loans can be used for various purposes, such as consolidating debt, funding a significant purchase, or paying for home improvements. The risk of default is higher with P2P loans, but the interest rates are often higher than traditional loans.

Government Loans

Government loans are loans that the government backs. The most common type of government loan is a student loan, but government loans are also for small businesses, housing, and agriculture.

Government loans typically have lower interest rates and more favorable terms than private loans. This makes them a good option for borrowers with bad credit. However, you can only use them for specific purposes, such as education or housing.

Credit Cards

Credit cards allow you to borrow money up to a certain limit. You can use credit cards for almost anything, from making purchases to taking cash advances.

Credit cards are easy to get for most people and easy to get in trouble with. If you have bad credit, you might be tempted to use a credit card to compensate for your lack of cash.

Beware of Interest Rates

Credit cards have high interest rates, and if you don't pay your balance in full every month, you'll start accruing interest. This can quickly get out of control, and you'll be buried in debt before you know it.

Payday Loans

Payday loans are short-term loans typically used to cover expenses until your next payday. These loans are generally unsecured, so they don't require any collateral.

It can be easy to get a payday loan, but they're also easy to get in trouble with. The interest rates are typically very high, and if you can't repay the loan on time, you might be faced with late fees and other penalties.

However, payday loans can be a good option for people with bad credit who need cash in a hurry. Just be sure only to borrow what you can afford to repay, and make sure you have a plan to pay the loan back on time.

Online Loans

Online loans are a type of loan that an online lender offers. There are a variety of online lenders, from traditional banks to peer-to-peer lending platforms.

Online loans can be a good option for people with bad credit, as they may have more flexible credit requirements than traditional lenders. However, the interest rates on online loans can be high, so it's important to compare rates before you apply.

Home Equity Loans

A home equity loan is a type of loan that uses your home as collateral. Home equity loans are typically used to consolidate debt, fund a major purchase, or pay for home improvements.

A home equity loan might be a good option if you have bad credit. The collateral you use to secure the loan can be used to offset the risk of lending to someone with bad credit.

However, home equity loans are a risky type of loan, and if you can't make the payments, you could lose your home. So it's important to make sure you can afford the payments before you take out a home equity loan.

Personal Loans

Personal loans are a type of loan given by a lender to an individual borrower. Personal loans can be used for various purposes, such as consolidating debt, funding a major purchase, or paying for home improvements.

A bad credit personal loan is typically unsecured, so they don't require any collateral. This makes them a good option for people with bad credit, as traditional lenders are often reluctant to lend to people with bad credit.

However, a bad credit personal loan can have high interest rates, so comparing rates before you apply is important.

5 Ways to Get Bad Credit Loans

Bad credit can feel like an albatross around your neck, preventing you from qualifying for loans and credit cards. But just because you have bad credit doesn't mean you're stuck with it forever.

Lending is a matter of lender discretion, and if your business has attractive long-term prospects, you may be eligible for a cash advance with bad credit.

In the U.S., personal loans have grown tremendously over the years, thanks to the convenience of online lending. Because of the favorable terms, you can get a loan even with a bad credit rating.

However, the interest rate may be higher depending on your credit score. In addition, non-payment may incur penalties and make your current situation worse. 

Credit Unions

Credit unions are member-owned, not-for-profit organizations that exist to serve their members. Because of this, they're often more willing to work with borrowers who have bad credit.

To join a credit union, you'll likely have to live, work, worship, or go to school in their field of membership. Then, once you're a member, you can apply for a loan.

Credit unions will consider your history as a member when making a decision. If you have a long history of responsible credit use with the credit union, they may be more willing to give you a loan than a bank would. However, you may have to pay an origination fee, which is a charge for processing the loan.

Joint Loans

If you have bad credit but know someone with good credit, you may be able to get a joint loan. The good credit borrower will act as a co-signer on the loan, increasing your chances of approval.

Just keep in mind that if you default on the loan, your co-signer will be on the hook for the balance. This could damage your relationship, so only consider this option if you're confident you can repay the loan.

Cash Advance from a Credit Card

If you have a credit card, you may be able to get a cash advance from the card issuer. However, this is essentially a short-term loan that you'll have to repay with interest.

Because cash advances are considered high-risk transactions, they often come with higher interest rates than regular credit card purchases. This means you'll pay more in the long run, so only consider this option if you're in a dire financial situation.

Friends and Family

If you're struggling to get a loan from a traditional lender, you may be able to borrow from friends or family members. Just remember that this is a personal loan, not a business transaction.

You shouldn't put it in writing unless you're absolutely comfortable with the terms, you shouldn't put it in writing. And even then, make sure you both understand that the loan amount may not be repaid if your financial situation doesn't improve.

Pawnshop Loan

If you have something of value that you can use as collateral, you may be able to get a pawn shop loan. Pawnshops will hold onto your item while you repay the loan, and they may sell the item if you default.

Pawnshop loans are often relatively small, so this likely won't be an option if you need a large sum of money. And because pawn shops are for-profit businesses, they may charge high interest rates.

Once you have repaid the loan, you can get your item back. But if the pawnshop sells it, you won't be able to get it back.

How to Improve Your Credit Score

Coming back from having a bad credit score can feel like an uphill battle, but getting approved for loans with bad credit is possible. 

You can do a few things to improve your chances of being approved. 

Pay Your Bills on Time

One of the most significant factors in your credit score is your payment history. When lenders see that you have a history of making late payments, it's a red flag that you might not be able to repay your loan on time. Even if you're doing everything else right, a history of late monthly payments can hurt your chances of getting approved for a loan. 

If you miss a monthly payment by more than 30 days, call your lender immediately and explain the situation. Many lenders are willing to work with you if they know that you're trying to improve your credit score. In addition, you can ask the creditor not to report the late payment to the credit bureaus or ask for an extension. 

Even if the creditor is unwilling to work with you, making the minimum monthly payment by the due date will help improve your credit score over time. Be sure to pay your overdue bill in full as soon as possible because your score will continue to drop every month that it remains unpaid.

Raising your credit score is very influential and has a low time commitment if you set up automatic monthly payments (e.g., pay the bill directly from your bank account) or reminders to make sure you're paying at least the minimum monthly payments.

How fast this method can work depends on how many payments you have missed and how recently the late payments occurred. How late each monthly payment is also has an impact—90 days past due will hurt you more than 30 days past due. The good news is that the impact of late payments will lessen as time goes on. 

Pay Credit Cards Off Strategically

Another critical factor in your credit score is your credit utilization, or how much of your credit limit you're using. Your credit utilization makes up 30% of your FICO score, so it's essential to keep an eye on it. 

Keeping Your Balance Low Can Help Your Credit Score

Ideally, you should aim for 30% or less credit utilization. So, if you have a credit card with a $1,000 limit, you should try to keep your balance below $300. 

Paying your credit cards off in full every month is the best way to keep your utilization low, but that's not always possible. If you can't pay your balance in full, try to pay more than the minimum payment. 

You might also consider transferring your balance to a low-interest credit card. This can help you save money on interest and free up more money to pay down your balance. Just be sure to use your new credit line responsibly so you don't end up in more debt than you can handle. 

Improving your credit utilization is a great way to boost your credit score, and it has a relatively low time commitment. Set reminders to make payments on the credit cards with higher balances and check in frequently to keep your utilization low.

This method works fast because your credit utilization is reported to the credit bureaus every month. So, your score will improve as soon as you lower your balances. 

Keep in mind that you may see a drop in your score when you start using this method because opening new accounts will temporarily lower your average credit age. But as long as you keep your new accounts in good standing, your score will eventually rebound and start climbing.

Dispute Any Errors on Your Credit Report

Another factor that can impact your credit score is your credit history. This includes any negative marks, like late payments, collections, and bankruptcies. 

If you have any errors on your credit report, it could be dragging down your score. That's why it's important to check your report regularly and dispute any errors you find. 

The best way to do this is to get a copy of your credit report from all three major credit bureaus—Experian, Equifax, and TransUnion. In addition, you can get a free copy of your report from each bureau once every 12 months at

Once you have your reports, go through them carefully and look for any errors. If you find any, you can dispute them with the credit bureau. 

You can do this online, by mail, or over the phone. Be sure to include any documentation you have to support your dispute. If the credit bureau finds it in your favor, they will remove the negative mark from your report, and your score will start to improve. 

Disputing errors on your credit report is a great way to boost your score, but it can take some time. The credit bureau has 30 days to investigate your dispute and decide. So, it's not an immediate fix. 

But if you have errors on your credit report, it's worth taking the time to dispute them. It could make a big difference in your score.

Ask For Higher Limits On Your Credit Cards

An easy way to improve your credit score is to ask for a higher limit on your credit cards. 

This can help because it can help improve your credit utilization, which we talked about above. For example, if you have a $1,000 limit on a credit card and carry a balance of $500, your credit utilization is 50%. But if you have a $2,000 limit and carry the same $500 balance, your credit utilization is only 25%. 

Of course, there's no guarantee you'll get a higher limit if you ask. It depends on factors like your credit history and personal income. But it's worth asking because it could help improve your score instantly, and it requires very little time commitment from you.

Become an Authorized User on Someone Else's Credit Card

If you're having trouble getting a loan with bad credit, you can try becoming an authorized user on someone else's credit card. 

This is when someone adds you to their credit card account as an authorized user. You'll get your own card with your name on it, but the account will be in the other person's name. 

Being an authorized user has a few benefits. First, it can help improve your credit utilization. Remember, the credit utilization ratio is the amount of debt you have divided by your total credit limit. 

Another benefit of being an authorized user is that you can piggyback off the primary cardholder's credit history. 

If they have a long history of making on-time payments, it will reflect positively on your credit report. And the longer your history of positive credit activity, the better your score will be. 

The account owner doesn't have to allow you to use their account for you to benefit from their positive credit history. You can simply be added as an authorized user and reap the benefits of their good credit history. This can be a great way to improve your credit score quickly without your good-credit friend or family member taking any risks.

This method can be highly beneficial if you're new to having credit and have a thin credit file. If you have an established credit history and try to offset some negative marks, it can still be helpful. But it may not have as big of an impact. 

Remember that becoming an authorized user isn't a guarantee that your credit score will improve. The primary cardholder's credit activity will still be the most important factor. But if they have good credit, it can give your score a boost without much effort on your part.

Use a Secured Credit Card

A secured credit card is another option to consider if you're trying to improve your credit score. This type of credit card is backed by a deposit you make upfront. 

For example, if you open a secured credit card with a $500 deposit, you'll have a $500 credit limit. This deposit acts as collateral if you can't pay your bill, and it's also used to offset any losses the credit card issuer incurs if you don't pay your bill. 

The deposit is typically equal to your credit limit, but it can be more or less. It depends on the issuer and the card. 

A secured credit card can help you improve your credit score in a few ways. First, it can help you build positive credit activity if you use it and pay your bill on time each month. Second, it can help improve your credit utilization ratio. And third, it can help you establish a longer credit history if you keep the account open for a long time. 

Just remember that you'll need to make a deposit upfront to get a secured credit card. You'll also want to make sure you use it wisely, so you don't lose your deposit. 

This method is typically more beneficial for anyone with a short credit history or trouble getting approved for a regular credit card. But it can still be helpful for people with established credit who are trying to offset some negative marks. 

Using a secured card can take longer to alter your credit score because you have to establish positive credit activity over time. But it can be worth it if you use it wisely and keep the account open for an extended period of time.

Diversify Your Credit

Another method you can use to improve your credit score is to diversify your credit. This means having a mix of different types of credit accounts. 

For example, you might have a mortgage, an auto loan, and a credit card. Or you might have two credit cards and a student loan. 

Diversifying your credit can help improve your score in a few ways. First, it can show that you can handle different types of credit responsibly. Second, it can help improve your credit utilization ratio. 

If you have a lot of credit cards with high balances, it can drag down your score. But if you have a mix of credit types with lower balances, it can help offset the negative impact of the high balances. 

You don't need to have a bunch of different credit accounts to improve your score. But having a mix of different types can help show that you're a responsible borrower, and it can boost your score. 

Deal With Collections Accounts

If you have collections accounts on your credit report, it's important to deal with them. Paying off these accounts removes the threat of getting sued or having your wages garnished. It also shows that you're taking responsibility for your debt. 

And as an added bonus, it can improve your credit score. 

There are a few different ways to deal with collections. First, you can try to negotiate with the creditor to have the account removed from your report. Or you can pay off the debt in full. 

The important thing is to take action and deal with the collections accounts in whatever way you can. Doing so can improve your credit score and give you some peace of mind. 

This method can also work pretty quickly, especially on credit scores that don't consider paid collections. Fewer FICOs and VantageScore are examples of credit scores that don't factor in paid collections. Your score will go up as soon as the paid-off status is reported to these bureaus. 

Get Credit for Utilities and Rent

You pay these bills every month, so you might as well get credit for it, right? 

Rent reporting services like RentTrack and Rental Kharma can help you do just that. These services report your rental payments to the credit bureaus, which can help improve your credit score. 

Not all scoring models factor in rent payments, but some do. And even if your score doesn't go up right away, reporting your rent can help you build a positive credit history. 

When it comes to getting credit for utility payments, services like Experian Boost can help. With Boost, you can add your utility and cell phone payments to your Experian credit report. 

This can help improve your score because it shows that you're making your payments on time. And the more positive information you can add to your report, the better. This method can be set up quickly and impacts your score right away in most cases.

Risks of Getting a Bad Credit Loan

While getting a bad credit loan can help you improve your credit score, it also comes with some risks. Several lenders may be willing to give you a loan with bad credit, but they will likely charge you higher interest rates and have less favorable terms. 

Always Read Lender Reviews

Some sketchy lenders offer bad credit loans, but with fine print, that could mean more headaches than the loan is worth.

For example, they could charge a crazy late payment fee, a high loan origination fee, or require minimum loan amounts that would make your monthly payments skyrocket.

Higher Interest Rates

The most significant risk of getting a bad credit loan is being charged higher interest rates. This is because lenders see you as a greater risk, and they want to make sure they're compensated for that risk. 

Interest rates on bad credit loans can be as high as 30% or more. And in some cases, you may even be charged a higher rate if you make a late payment. 

This is why it's so important to shop around and compare interest rates before you decide to get a bad credit loan. You don't want to pay more in interest than you have to. 

You May Need a Co-Signer 

Another risk of getting a bad credit loan is that you may need a cosigner. A co-signer is someone who agrees to be responsible for the loan if you can't make the payments. 

This can be a risky proposition for the co-signer, as they're on the hook for the loan if you can't pay it back. And if you do default on the loan, it will damage their credit as well. 

For this reason, it's important to choose your co-signer carefully. You should only ask someone to cosign for you if you're confident you can make the payments. 

Watch Out for Predatory Lenders

Unfortunately, some lenders out there prey on people with bad credit. These lenders will offer you loans with terms that aren’t in your best interest. And in some cases, they may even charge you hidden fees or prepayment penalties. 

This is why it's so important to do your research before you choose a lender. You want to make sure you're working with a reputable, trustworthy lender. 

Frequently Asked Questions

Which credit score is most accurate for banks?

The most accurate credit score for banks is the FICO score. This is the score that most banks use when making lending decisions. It is considered the most accurate because it takes into account all of the information in your credit report, including your payment history, credit utilization, and length of credit history. 

How do I compare loans?

When looking for the best personal loan for your situation, there are a few things you'll want to keep in mind. First, you'll want to compare interest rates. Interest rates will significantly impact the total cost of your loan and can vary considerably from one lender to the next. 

Another thing to consider is the terms of the loan. Home loans may have prepayment penalties or other terms that are not in your best interest. So, be sure to read the terms and conditions carefully before you agree to anything. 

Finally, you'll want to consider the reputation of the lender. Some lenders prey on people with bad credit. So, you'll want to make sure you're working with a reputable, trustworthy lender. 

Can I buy a house with bad credit?

It's possible to buy a house with bad credit, but it will be more difficult. For example, you may have to put down a larger down payment, and you may have to pay a higher interest rate. You'll also want to make sure you're working with a reputable lender who is willing to work with you. 

Things that may help you get a home loan with bad credit include your annual income, job history, and joint applications.

If I apply for multiple loans, will my credit score go down?

Applying for multiple loans will not necessarily cause your credit score to decrease. However, if you are approved for multiple loans, it may be a sign to lenders that you're in financial trouble. This could cause your credit score to go down. 

Having multiple credit inquiries can also cause your credit score to go down. So, if you're shopping around for a loan, it's best to do it within a short period. Then the inquiries will only show up as one on your credit report. 

How long does it take to get my bad credit up?

Bad credit can take a long time to improve. So it's essential to make payments on time and keep your balances low. You should also avoid opening new lines of credit and closing old ones. These will help your credit score improve. 

If you're patient and take these steps, you should see your credit score improve within a few months. However, it can take up to a year or more to see significant improvements. 


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