Are you looking to draw out a small personal loan? It could be for debt consolidation, house renovation requirements, emergency expenses, vehicle finances, etc. Whatever your reason for getting a personal loan, this process can become an ordeal if you have bad credit. Your credit history impacts this credit score, like the number of credit cards or loans used, payment history, etc. It can create difficulty in getting your rental application sanctioned, cause rejection of a line of credit, lead to trouble during an employee background check, etc.
So, if you want a small loan with bad credit, here are some ways to improve your creditworthiness!
- Double-check the credit score
First, you need to review your credit score to check which factors are impacting the score. Here are certain elements that have the most effect on the credit score:
- Previous payment history, including whether or not you pay your bills timely, affects your credit score.
- Credit utilisation rate, i.e., how much credit is available and how much you use, affects it.
- The length of the credit cycle influences credit score.
- Credit combinations that you are using and;
- Recent credit accounts and applications made by you also affect your credit score.
Besides checking the essential factors influencing the credit score, check for any errors in the credit report. Check if there is any inaccurate information or if an account is opened under your name falsely. If it is affecting the score under your name, raise a query with credit bureaus.
- Pay bills without any hitch
Your payment history leads to consequences when it comes to your credit score. Paying your bills on time is one way to ensure that it does not pull down your credit score.
Set up an autopay to ensure that your recurring bills, such as a car or student loans, are paid on time. You must provide appropriate money in your bank account to cover all the charges.
Also, be upfront and honest with your creditors regarding your ability to pay. So, they can help you with the payment and interest for a while if you are undergoing any financial hardship.
- No hard inquiries
Once you apply for a new credit line, the hard inquiry shows on your report. This hard inquiry can cause your credit score to go down temporarily. So, only apply for a loan to check if it will get approved or if you have a pre-qualified offer; it is not a good idea. If you have a line of hard inquiries on your report, it will cause an impression that you are in too much debt, and the effects can last for 12 months.
So, before you apply for a new loan, do thorough research to see if you are likely to get approved for the credit or not. Getting a pre-qualification will lead to a soft credit pull, which does not run a prolonged risk of worsening your credit score. Also, ensure to refrain from getting new credit cards in a limited time.
Over 20% of Australians have bad credit marks in their previous credit history. So, improve your credit score before applying for it if you are looking to get a small loan with bad credit.
Review your credit history, pay bills timely, and do not make too many hard inquiries.