How to Boost Your Chances at an Unsecured Personal Loan with Bad Credit

Bad credit can make you feel like you’re pigeonholed by fewer borrowing options when you need them most. And according to Experian, roughly 44 million individuals contend with the limitations of bad credit.

Circumstances like a home repair, medical expense and flat tire don’t stop to consider your financial situation. As a result, it’s up to you as a potential borrower to find a way to take the unfavorable factors that make up your credit and turn it around for the better.

In fact, with the right approach, it’s possible to obtain an unsecured personal loan with bad credit. Whether you implement a shortcut or invest in a long term strategy, the flexibility in turning to a personal loan can make it that much easier to face a rough financial patch.

Should I Apply For a Personal Loan with Bad Credit?

There’s no right or wrong answer when it comes to applying for an unsecured personal loan with bad credit. But you should consider if taking on this financial responsibility will create a ripple effect with the rest of your budget.

Personal loan lenders tend to charge higher interest (as much as 20 to 30 percent APR) as a tradeoff for less than stellar credit. Ask yourself what’s driving your need for a personal loan.

“If you are taking out a personal loan in order to pay off higher interest loans and reduce your monthly debt payments as part of an overall get-out-of debt plan, then applying for a personal loan can be a fine choice,” says New Jersey bankruptcy lawyer John W. Hargrave. “Having a get out-out-of-debt plan is key.”

Otherwise, you risk using a personal loan to spend more money, which puts you at increased odds for debt moving forward, essentially defeating the purpose of borrowing in the first place.

Tips to Work Toward an Unsecured Personal Loan with Bad Credit

Because your credit score is the key influencer in a lender’s decision of loan amount and APR, improving this score is central to shaping the rest of your application approach.

Scour for potential errors. Every consumer is entitled to an annual free credit report, which is a perfect opportunity to check for any errors that could be responsible for dragging your scores through the mud.

Thanks to the Fair Credit Reporting Act, you may have more rights in fixing these wrongs than you think. Write a letter to the credit issuer to request an investigation of the error, which they must complete within 30 days.

“If the party reporting the wrong information does not verify the accuracy of the report to the credit agency they must remove the item from your credit report,” says Hargrave.

Work on rebuilding your score. Hargrave advises to start small in reducing your debts.

“If you have bad credit, follow a plan to rebuild your credit score,” he says.

Whether you get a low limit credit card, secured credit card or begin to pay off existing I.O.U’s, demonstrating that you can pay a balance in full repeatedly can show a creditor you’re capable of taking on financial responsibility.

Consider a co-signer. Often, the need for an unsecured personal loan with bad credit supersedes the surefire, yet long-term process of rebuilding credit. In this case, a co-signer is a potential shortcut. But like all shortcuts, you should be wary of a few things.

When a co-signing friend or relative with good credit teams up with you to apply for your personal loan, it can increase your approval chances and lower your rates.

However, a co-signer will end up bearing an equal burden for repayment, and if you end up defaulting on the loan, the co-signer will be 100 percent responsible. Not only could these circumstances negatively affect the co-signers credit score, but can sour your existing relationship with them fast.

Getting an unsecured personal loan with bad credit is possible, but you should make sure that it’s a realistic commitment in the broader scope of your personal finances. A personal loan should be a means to stimulate your cash flow and get you back on track, rather than put you further into debt.

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