Getting an Unsecured Loan

By: Gregg Pennington

If you want to borrow money but have somewhat poor credit, and you have nothing of significant value to use as collateral, you may still be able to get an unsecured loan. The determining factor is how bad your credit really is.

Many people have had credit problems at some point. Whether you have made several late payments, or have had a more serious credit issue like a bankruptcy, your credit may not be as poor as you assume it to be. While a bankruptcy remains on your credit report for ten years, as time passes, the effect of a bankruptcy or other past credit problems on your credit will diminish.

As the number of home foreclosures continues to increase, and the number of people filing for bankruptcy rises, a growing number of lenders are catering to the sub prime credit market. You will pay a higher rate of interest to get an unsecured loan with bad credit, but you are likely to find a willing lender with some persistence.

Before entering into a loan agreement, you should order a copy of both your credit report and your credit score. A quick look at your credit score will give you a broad picture of the condition of your credit. FICO scores are the accepted standard of ranking credit, and they range from a low of about 300 to a high in the mid 800's. The median score of the US population is approximately 720, although more than 40% of people have a FICO score below 700. Your credit score is the only gauge of your financial condition that many lenders will use to determine your eligibility for credit and at what interest rate they will loan you money.

For a more detailed analysis of your credit you should take a look at your credit report. Your credit report will reveal your history of on time payments, and whether or not you have defaulted on debts in the past. Lenders that make a practice of providing unsecured loans for people with bad credit will want to take a deeper look at your situation than a simple three digit number would allow.

One reason that lenders may want to view your credit report is that there can sometimes be a discrepancy between your credit score and your complete credit history report. Too many inquiries into your credit by lenders in the recent past can temporarily lower your credit score, but may not accurately reflect your use of credit. Lenders that specialize in unsecured loans for people with bad credit expose themselves to considerable risk of default, so they must have a way to rank loan applicants, the majority of whom have low credit scores.

A poor credit score could also be the result of incorrect information on your credit report. If your credit score contains inaccuracies that are pulling down your credit score, you can and should have them corrected or removed as soon as possible. Companies making entries to your credit report must verify that their information is correct, or the item can be removed. When you are trying to get an unsecured loan with poor credit, you don't need the added burden of incorrect information on your credit report.

As a last resort, you may need to find a co-signer to get a loan. This loan is not secured by you, but rather by the obligation of your co-signer to repay the debt in the event you do not. Before finding a co-signer, make sure you will realistically be able to make payments on the loan. If you are unable to afford the payments, you will jeopardize the credit of your co-signer, and harm your own credit even further.

Even if you are unable to get an unsecured loan, don't lose hope. Many valuables can be used as collateral for a loan. Jewelry, automobiles, and real estate are just a few examples. You may also be able to find a lender who will only consider your income when deciding whether or not to extend you credit. Be realistic about your credit and your ability to repay the amount of money you wish to borrow. With a bit of creativity and some persistence, almost anybody can get a loan, even with damaged credit.

Unsecured Loans
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