Your credit score can determine a number of options you have in your life from being able to buy a home, to whether or not you get a job you have applied for. Your credit score really goes a long ways when it comes to applying for a loan. Having a low credit score may disqualify you from most lenders, and in the few that are left, may leave you with a much higher interest rate. Luckily, there are a few ways to still qualify with less than perfect credit.
Step 1
Pull your credit report. Before applying for a loan, it is important that you see what a potential lender sees when they look at your financial health. Items such as late payments, judgments, bankruptcies, collection accounts, and charge-offs are all items that can affect your ability to get a loan. Thanks to the Federal Trade Commission (FTC), by law you are allowed one free credit report from each of the three consumer credit bureaus each year. If you have already used up your credit report for the year, you can purchase them directly through the credit bureau.
Step 2
Buy your credit score. Your credit score is another important piece of information that a lender will use to determine your lending worthiness. Your score gives the lender a basic idea of how much risk you pose as a borrower. You can buy your credit or FICO score directly from the credit bureau. Your score may vary from bureau to bureau.
Step 3
Correct any errors on your report. Once you have your credit report, correct any errors that you see on the report before applying for a loan. Errors are common in credit reporting, and can drastically affect your overall score. You can contest an item on your credit report by sending a letter to the credit bureau requesting the item be looked into and removed. Send any supporting evidence along with your claim to the bureau. Most errors will be investigated within 30 days.
Step 4
Bring your accounts to a current status. Before applying for a loan, try to bring all of your accounts to a current status. This means paying any late bills, and then never paying a late payment again. Each late payment goes against your credit score, and bringing credit accounts to a current status, and keeping them there, can go a long ways to convincing a lender to take a risk on you, even if you have a low score.
Step 5
Pay off charged off and collections accounts. Charge-off and collection accounts can also prevent you from getting a loan. Call each creditor and ask if there may be a way to settle for less than what is owed. Many creditors will do this to help clear the account, and you get the benefit of improving your credit for less money.
Step 6
Consider a federally guaranteed loan. If you are looking to get a home mortgage, there are federal programs such as FHA (Federal Housing Administration) mortgages, that have different credit requirements than most lenders. FHA loans are specifically set up to help buyers with less than perfect credit still qualify for a loan. Lenders are more likely to lend to those with bad credit through an FHA program because FHA loans are federally guaranteed.
Step 7
Talk to your banks loan officer. Once you have made a sincere effort to start correcting your credit, talk to your bank's loan officer. Bring any statements showing that you have paid off outstanding debts, as well as your new history of never making a late payment. Showing proof that you have changed your financial habits may help convince a loan officer to take a risk on you. If not, continue to build a better credit history, and soon your credit score will be high enough to qualify for a regular loan.
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