A less-than-stellar credit score can hurt your chances of getting approved for a loan. If you’re in the market for a loan and have bad credit, here are some tips to help get approved:
Get a cosigner for your loan
Borrowers with low credit scores may qualify for bigger loans and better interest rates by adding a cosigner. A cosigner is someone other than the primary borrower who signs a credit or loan application with the primary borrower. If the cosigner has a higher income or credit score than the primary borrower, it could improve the odds of the loan getting approved. If the loan gets approved, the cosigner will be equally responsible for repaying the debt and assume legal liability if the primary borrower defaults.
So, who can you ask to cosign? Common options include family, friends and anyone who’s interested in helping you. They will need good credit and extra income to support your loan, so only seek out those who can improve your odds at getting your loan approved. If they agree, make sure they’re clear on all the responsibilities.
Put down collateral
If you own something of value, it could boost your chances of getting a loan approved. Collateral is property that you can pledge as security for the repayment of a loan. Common examples include cars, boats and jewelry. The amount of collateral required could be equal to or more than the amount of the loan.
If you’re considering putting down collateral, be aware of the risks involved. In some cases, a lien is placed on the collateral giving the lender legal right to take possession of the pledged property if you fail to repay the loan. If the loan is paid in full, the lien is removed and you get your property back. If the loan is not paid in full, the lender may take possession and sell it.
Improve your credit score
If you can wait to borrow money, building up your credit score is one of the best ways to improve your chances of getting a loan. Here are a few blogs that can help you achieve this goal:
Bad credit can affect your chances of getting approved for a loan. However, if you take the right approach, you could be happy with the results.
*This article has been updated from its original posting on March 19, 2015.
C. McClane contributed to this article.