Some folks get into financial troubles because of a sharp unexpected drop in their income – sudden job loss, demotions, business troubles, or even a crash in the stock markets could put people in financial troubles. More so, people could run into financial troubles because of a sudden increase in their expenses. The arrival of a new child, a medical emergency, and divorce among other things could put a strain on finances.
Sadly, financial troubles when not quickly addressed often have an adverse effect on a person’s credit score. Hence, many people find it hard to overcome their financial troubles because they are caught in the vicious cycle of financial troubles and a bad credit score.
Nonetheless, the fact that you have bad credit doesn’t mean that you should be stuck in a financial rut. This article provides insight on 4 actionable steps for obtaining getting out of bad credit.
Step 1: Obtain your credit report
The first step you must take if you want to get a bad credit loan is to obtain your credit report. Your credit report contains detailed information about your loan paying history, the state of your credit accounts, and your financial solvency.
You have the right to obtain a free copy of your credit report from the Annual Credit Report bureau once each year.
It is important to obtain a copy of your credit report for you to be one step ahead of lenders. The lenders won’t decide on your loan application until they’ve seen your credit report.
Secondly, obtaining a copy of your credit report can set you on the path to rebuilding your credit.
If the report has some inaccuracies, you can easily spot the errors, file a dispute and correct them instead of being punished unfairly with a bad credit score.
Step 2: Ensure that your lender is pulling a soft inquiry
You should submit your loan application with the understanding that the lender will order your credit report to know your creditworthiness. However, lenders can pull either a soft inquiry or a hard inquiry.
A soft inquiry won’t affect your credit score and you are the only person that will know that someone tried to know your credit score.
A hard inquiry leaves a footprint because it stays on your credit report for as much as two years and it shaves off some points of your credit score.
The worse thing about the hard inquiry is that other lenders will see that you’ve previously tried to obtain a loan from another lender.
They’ll deduce that the fact that you are applying for a loan with them suggests that the first lender didn’t approve your loan application.
Logically, since the first lender had reservations about lending you money; they’ll also be skeptical about approving your loan application.
Step 3: Find out if the lender charges an origination fee
There’s no free money and a loan is certainly not free – you’ll have to pay interest and other fees. However, before you apply for a loan; you must know the kind of fees that the lender charges so that you are not caught unawares when it is time to pay the piper.
Many lenders charge an origination fee, usually between 0.5% to 1% of the loan amount but it could be as high as 5% with some alternative lenders.
You should compare loans for bad credit to find a lender with the most favorable fees.
You should note that the origination fee would be deducted from the total loan amount; hence, the actual loan amount you’ll receive will be lesser than the approved loan amount.
You should also note that some lenders call the origination fee by other names such as service fees. The most important thing is to know how much you are paying for the loan you want to obtain before you apply for the loan.
Step 4: Create a rock-solid repayment plan
Getting a loan is only half the journey, repaying the loan promptly is the longer part of the journey to rebuilding your credit score. The fact that you are looking for bad credit loans suggests that your finances are already a mess.
Hence, you shouldn’t allow it to get messier with another unpaid loan. It is in your best interest to work out an actionable repayment plan before the loan is approved.
To start with, you need to understand that you’ll have one more expense to pay each month. Hence, you might want to consider using personal financial planning tools such as budgets and automatic saving systems to put reins on your expenses.
Your success in repaying the new loan could play an important part in the speed with which you’ll rebuild your credit and get out of a financial rut.