You May Not Qualify for a Loan If
Your Credit Score and History Raises Flags to Lenders
A low credit score is the most common reason Canadians don’t qualify for the loans they want or need. The good news is that the red flags can be fixed. If your credit history is too short, build it with a secured credit card. If you have missed or late payments, catch those up. If your credit cards are close to maxing out, bring the balances down. You won’t be able to fix everything at once. But small steps will help to gradually improve your credit. Equifax labels credit score ranges as follows:
- 760-900: Excellent
- 725-759: Very Good
- 660-724: Good
- 560-659: Fair
- 300-559: Poor
Bad credit loans are typically for those with a score under 600. However, don’t obsess over your credit score. One thing lenders really like to see is stability. You can show this by staying employed in the same industry and living at the same address. If you need to move often, try to get a stable mailing address. Most importantly, avoid applying for credit too often. Whenever you make an application, lenders make an inquiry on your credit. Getting several inquiries back-to-back can do a lot of damage.
Secured and Unsecured Loans Checklist
Whether you want a secured or unsecured personal loan, there are a few things you should do before applying. Below is a checklist of them. Following these will help you avoid problems later:
- Review your credit report. If you find problems, try to fix them before applying.
- See if there’s a way to get the money you need without taking out a loan. Options may include selling personal assets or borrowing from family.
- Research different lenders without applying or giving any personal information (to avoid credit inquiries that can damage your score).
- Make sure you understand all interest rates, conditions, and fees of the loan you want to apply for. This includes what happens if you can’t repay it.
- Have a realistic plan to repay the loan.
The easiest bad credit loan to get is a secured loan. If it’s defaulted on, then the collateral provided will be lost. If you don’t have any acceptable collateral, then an unsecured payday loan can be easy to get, but hard to get rid of. It typically uses your pay cheque or bank account to approve your loan. This is best avoided because interest rates are often sky high and lenders can be very aggressive with collecting.
Guaranteed Approval for Loans for Poor or Very Bad Credit Canada
Stay away from anything that’s marketed as guaranteed approval loans for people with poor credit in Canada. When looking for a loan, you won’t find a bigger and redder red flag than the word “guaranteed.” The same goes for “instant approval.” These kinds of loans are only guaranteed to have high interest rates. The idea of automatically being approved for up to a $10,000 loan can be tempting, especially if you’re very worried about having extremely bad credit. But even if your money needs are urgent, don’t fall for this trap. It’s never worth it in the end.
How to Get Out of Debt with Bad Credit
Debt Consolidation Loan and Other Options
Debt consolidation can help you get out of debt with bad credit. It works by taking your current high-interest debts and combining them into one, lower-interest debt. Paying less interest helps you pay the principal down faster. A debt consolidation loan is one way to do this. A credit card balance transfer is another way, but can be more costly. Getting out of debt will greatly help your credit in the long term. However, both of these options can lower your credit score at first. They both also carry the risk of doubling your debt. To avoid this, only use them to pay down your current debt, and don’t make any new debts before they’re fully paid off. This can be harder than it sounds. Plan for success by making a realistic budget before consolidating your debt.
Getting a debt consolidation loan or credit card balance transfer is difficult with bad credit. Instead of borrowing more money to consolidate, you can consolidate just your debt payments with a debt management plan. This isn’t a loan or credit line, so you can be accepted regardless of your credit. In fact, your approval is not based on your credit check at all. By working with a non-profit organization like us, you’ll also have the benefit of guidance from a credit counsellor. The counsellor will help you make a budget and plan for success – you won’t have to go it alone. Learn more about how this alternative can help you with your debt problems. Call us at 1-888-527-8999.