Bad credit loan credit card
Many a times a person becomes bad not because he is bad but because situations force him to be so. Same is the case with some bad creditors. Their mortgage turns to bad debt not because they are defaulters but because they are sometimes caught in such situations that they fail to repay the debt. The financial institutions also realize this fact and therefore they have certain plans for consumers also. But how to find out if a bad creditor is reliable Sometimes back, bad credit was a mysterious concept as there was no uniform, statistical way to find out the borrower's credit behavior.
Later, a company called Fair Isaac Corporation formulated a uniform credit scoring method called the FICO score. It is one of the best indices of credit rating. To calculate this score, the information in a borrower's credit report is compared mathematically to the credit report information of thousands of other borrowers which concludes the future credit behavior of the borrower. Most lenders use the FICO score to decide the credit lending probability to a person. The three major American credit bureaus, Experian, Equifax, and TransUnion rely on these scores to find out the credibility of the borrower.
Range of FICO score
FICO credit scores range from a 300 to 850. A higher score indicates better chances of credit. According to Experian, the average American credit score is 677. Fair Isaac suggests that one needs to score at least 720 to be entitled for a loan. These credit bureaus, the Fair Isaac Corp. and other companies, help to make a person's credit score better for some fees.
Factors affecting FICO score
Payment history: It is the most important factor and contributes to 35% of one's score assessing the credibility of a bad credit. It includes payment information on credit cards, mortgages, auto loans, and other loans. Missing payments or making late payments will have a negative on the FICO score. Bankruptcy or other such judgments against the person also affect score adversely.
Difference between the existing credit and credit balance: If this difference is high, it is positive and if it is low it is negative for the score because low difference indicates that the person has almost exhausted his credit limit for his unfruitful uses.
Length of credit history: Having a long and good credit history is very good for the score as compared to a short and good history as it determines how consistent a person is in repaying the debt.
Change in credit activities: It includes which credit instruments are being newly used (such as applying for a new credit card) and the type of credit which were used in the past (credit cards, installment loans, consumer finance loans, etc.).
Things to Remember about Bad Credit Loans
It is quite possible that the lender might understand the borrower's financial situation especially if he had a recent setback like a divorce, relocated or lay-off.
Lenders have various loans for people with bad credit, so they can best recommend an appropriate bad credit loan for the consumer.
Once the consumer gets bad credit, higher interest rates and/or additional security requirement is must.
The interest rates for a bad credit loan depend on the amount of loan applied for and the sources of collateral and current income.
Secured personal loans generally have lower interest rates than unsecured loans.
Secured bad credit personal loan enables to borrow up to 125% of the property value.
Credit options for Bad Credit Loan
Some options for bad credit loan consumers are as follows:
Credit card options-Pre-paid credit cards like secured and unsecured credit cards
Personal loans with higher interest rates
Loan for unemployed
Loan for child's education