Are You Still Eligible for a Debt Consolidation Loan If You Have a Bad Credit History?

Plenty of us encounter a few financial roadblocks in our lives and that often means that you might need a bit of a helping hand to get your finances back on track.

One of the ways to do this might be with a debt consolidation loan, however, there is the question of whether you might still be able to qualify for one of these loans if your credit history doesn’t look too good.

Here is a look at your options and whether you are still eligible for a debt consolidation loan when your track record on payments doesn’t make you as attractive a lending proposition as you hoped.

Check how bad it is

It makes sense to seek out info from, for example, to see what loan deals are about but another top priority should be to check out your credit report and see what it says about you.

It is easy to check your credit report and it is also wise to do so as you need to have a clear idea of what existing lenders are saying about you and your finances.

There is absolutely no point burying your head in the sand if you have got into a debt situation and it makes a lot of sense to read through your report to check whether the information is accurate and to confirm what sort of credit score you currently have.

Your credit score number is pivotal to your chances of getting a loan approved and dictates what interest rate you will be offered.

It works on the basis that the higher your credit score the lower the interest rate you are likely to be charged. Therefore, having a poor credit score with a low number will make it harder to get credit and will also mean that you will likely be charged a higher rate to reflect the risk of you not paying the loan back based on the previous history.

What is the magic number?

You might see something called a FICO score mentioned on your credit report.

This is a type of credit score used by a lot of lenders and it is used as a measure of risk based on data about your credit history and payment performance with loans and credit cards that you already have.

If your FICO score is below 580 it could prove more of a challenge to get approved for a loan, including a debt consolidation loan.

Anything above that number improves your prospects and might allow you the opportunity to take steps to sort your debt situation out by consolidating your borrowings into one loan.

Check your number so that you have a much clearer idea of your borrowing options.

Still options available

They say that everything has a price and that is true when it comes to borrowing costs and getting a loan deal approved.

Even if you have a poor credit rating and a low number to work with at this point in time there is still a possibility that you could get approved for a loan deal but you will probably;y have to accept that the interest rate is going to be higher because of the perceived risk of default.

It is always worth remembering at this point that your credit score is constantly evolving and there are always things you can do to improve your rating over time.

Nothing is set in stone when it comes to your credit report and if you can manage to keep up to date with your existing repayments and always pay on time, this will be reported by the lenders and should bring about an improvement in your score.

Looking beyond the data

Another key point to remember is that the loan market is highly competitive and there are plenty of lenders keen to sign up customers, even ones with a less than perfect credit rating.

The good news about this is that you may be able to find a lender who is willing to look at alternative data and consider your current circumstances rather than focus on your credit score in isolation.

Your job history, current income, and other relevant factors could help persuade a lender that you deserve a chance to put your finances back in better shape with a loan deal that allows you to do that.

Your financial profile is often heavily influenced by your credit history and score but there are lenders who are happy to treat each loan application on its own merits.

Improving eligibility for a debt consolidation loan

One of the prime reasons why a debt consolidation loan might work for you is the fact that you won’t have to juggle your finances around to try and pay off lots of different amounts at varying times throughout the month.

The issue with having multiple loans to service is not just the fact that you will be paying interest charges at different rates on these outstanding balances but also there is a heightened risk that you might miss a payment deadline date on one of these.

Missed or late payments are a big contributor toward a poor credit score and it worries prospective lenders when they see this happening.

If you consolidate your borrowing into one loan it could reduce the amount of interest you are charged each month and you will only have one payment date to focus on, reducing the prospect of a missed or late payment.

Keeping up to date with a loan repayment schedule will have a positive influence on your credit score over a period of time.

Go easy on your credit card usage too, as this can be an expensive form of borrowing and if your cards are close to the limit this will be a negative factor for getting approval for another loan.

Having a bad credit history is a hindrance to your chances of getting approved for something like a debt consolidation loan but there are ways to improve your rating and if you demonstrate good money management skills that will soon be reflected in an increased score.


Arnel Ariate is the webmaster of Money Soldiers.

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