Bad Credit Loans
TweetWhat Does Bad Credit Loan Mean?
When applying for a loan, credit, or financing of any sort, one wouldn't apply for a bad credit loan. However, the condition your credit is in will determine the rate and terms of your loan; assuming that your credit even allows you to qualify for a loan. If you have bad credit, loans may not be available to you, or they will carry such high interest rates that you may never be able to pay them off.
Good vs. Bad Credit Loans
When you apply for a loan, the potential lender will check the status of your credit and determine your creditworthiness; which means your ability to repay a loan based on your credit history and credit score. Your credit score is a statistical analysis of the information on your credit report and is really the deciding factor as to whether or not you get a loan and under what terms. Your credit score is comprised of your payment history, the number and types of accounts you have, the age of your accounts, and outstanding debts.
Sometimes the potential lender will also look at other factors in addition to your credit score. These lenders rely on the three "C's"; Capacity, Capital, and Character to determine your creditworthiness.
Capacity - Your ability to make payments on your debts. The length of time you have held a steady job, your salary, and the amounts you owe on your debts are all factors used in the decision-making process. If you jump form job to job or only get paid minimum wage you are judged as having a poor capacity to repay. Also, if you have several other loans, particularly large ones, you may not be able to obtain another one.
Capital - The money in your bank accounts as well as the value of other assets are considered capital. If you are unable to repay a loan for whatever reason, the lender feels safer knowing that you could sell your assets and apply that money to your debt.
Character - What is your financial reputation? Do you make your payments regularly, on time, and for the full amount? If you are late even one month it could hurt your credit score and reputation. Do everything you can to make payments on time each month.
The three C's are also what go into calculating your score. The three major credit bureaus; Equifax, Experian, and TransUnion, each provide their own score. Each score could vastly differ from one another. Usually the lender will go with the middle score. The scoring model ranges between 300-900. Scores of 620-680 are considered average and you should be able to get a loan. Anything above 720 is considered good and you should have no problem obtaining a loan with the best rates and terms.
