Many people took a hard credit hit during the global pandemic. If your score has taken a beating but your finances are on the upswing, you may be looking for a loan for a vehicle or to wipe out high interest debt.
If you're working, consider setting up a bank account with a credit union. Get your checks deposited into your account and go into the bank when you need cash to pay your bills. Using a debit card in the early stages of credit repair may make it too easy to overspend. Try to keep your spending as low as possible so you can build up a reserve.
When you have a bit of history built up with your credit union, discuss getting a credit repair loan to increase both your credit rating and your savings. If you aren't interested in a bad credit loan, you may be able to take out a loan against your savings account.
Getting a Loan With Bad Credit
Too often, the loans available to those with bad credit have exorbitant interest rates. To avoid burning money on interest, do your best to avoid borrowing until you have some reserve cash built up.
Visit with your credit union loan officer about any debt you currently have. For example, you may have found yourself in an emergency situation and taken out a Payday loan. The egregious interest rates charged by these organizations may mean that you now are facing a debt that simply can't be overcome.
Your credit union loan officer can direct you to options that will allow you to pay a lower rate of interest. They can also let you know if you need to discuss a legal option, such as entering bankruptcy protection, to get this debt addressed.
You may also be able to borrow with the help of a cosigner. The challenge of working with a cosigner is that
- Your debt will limit their ability to borrow
- Your failure to pay can damage their credit
- if you default on the loan, you can seriously damage relationships and trust
If you can get someone to cosign for you, make paying off that loan your first payment each month.
Minimizing Risk of a Bad Credit Loan
For the bank, your ability to get someone to cosign for you wipes out their risk as long as your cosigner can handle the debt. The bank is more comfortable knowing they're not the first entity on the hook for the debt.
If you have steady employment and are making regular deposits in your bank account, your bank may be willing to extend you credit. While you're working to build up some savings and protect yourself from another financial shock, make sure that you're paying off debt with an eye toward those debts that can impact your credit. You need to pay your rent on time to avoid eviction, but paying at least the minimum on
- Credit card debts
- Utility bills
- Phone bills
- Bank loans
Paying debt bills early will reduce the negative hits on your credit score. If you can pay off any credit card balance monthly, you'll get multiple positive hits to credit bureaus, which will be good for your score.
Likely Terms and Interest
The higher the risk, the more expensive the debt. Borrowing against your own savings will likely be the cheapest money you can access as it's secured debt. For example, if you can save up $500 and owe that much on a high interest credit card, borrow against your savings. Pay off the credit card for a good credit report ding and transfer those payments to the loan on your savings. Pay off that loan and continue to add to your savings until you can borrow again.
If your current bank offers personal loans on your savings, check out the terms. Do not draw money out of your savings account to wipe out other debts. The impetus to pay debts is stronger than the push to save money. If your bank can't work with you, move your money and your deposits to a local credit union.