Personal Loans for Bad Credit

We all make mistakes and hit some financial bumps in the road. At times it can seem overwhelming to try to get back on track. A key component to turning your financial situation around is understanding what lenders are looking for when they loan you money. Once you know your credit score and its impact on you getting a loan, you can better plan a path forward.

What is Bad Credit?

A VantageScore or FICO score below 600 is considered poor to very poor. Both scoring models agree the two most important factors they consider are your payment history and credit utilization. Check out our credit score chart to see where you fall. 

How to Improve a Bad Credit Score

The primary way to build a good credit score is to use credit responsibly over time. Most credit slip-ups fall off your credit report in seven years. During that time, there are some things you can do to help rebuild your credit and re-establish yourself.

  • Make on-time payments. Since payment history is the most crucial factor in your credit score, it’s key to always pay on time. Paying bills late by 30 days or more can dent your scores.

    If you struggle with budgeting to pay off your current debt, look into two popular budgeting options:  the snowball and avalanche methods.
  • Pay in full. You should always pay your minimum payment, paying your bill in full every month to reduce your utilization rate.
  • Don’t open too many accounts at once. Inquiries temporarily reduce your credit score, though they rebound within a few months. Try to limit applications as needed.
  • Reduce your credit utilization. Paying down credit cards will decrease your credit utilization. Work to bring your utilization below 30 percent.
  • Have a co-signer for a credit card.
  • Ask to be an authorized user on someone else’s credit card.
  • Get a secured card or personal loans for bad credit.

How Can Personal Loans Help if You Have Bad Credit?

A personal loan can help you build or rebuild your credit. Personal loans for bad credit can assist with re-establishing your credit. Taking out a personal loan can increase your credit score if you make regular, and on-time, monthly payments. Adding a personal loan to your credit mix is also a good way to showcase that you have diversified credit in the market. 

Taking out this type of loan and making regular monthly payments will show a new kind of credit mix and improve your payment history, increasing your credit score. Additionally, since credit mix accounts for 10% of your FICO score, adding a new loan can also increase your credit.

However, not all personal loans are created equal (or with the borrower in mind). Predatory lenders can, and do, take advantage of those with a bad credit score by offering a variety of predatory loan types. 

Understanding Car Titles Loans and Other Predatory Lending Practices 

A lender that lures a borrower, typically one with bad credit, into a loan that is not what the borrower expected is considered predatory lending. These loans are generally high-interest, have multiple fees, and undesirable terms. 

Due to this unethical lending behavior, a borrower usually ends up more at-risk financially, resulting in unpaid debt and an even lower credit score. 

If you wouldn’t have the ability to handle a $1,000 emergency – you’re not alone. 37% of Americans say that they would have to use a credit card, ask friends or family for financial assistance, or take out a personal loan to manage such an emergency. 

Unfortunately, those Americans are also the most susceptible to predatory lending. 

A white woman sits on a couch on the phone holding a credit card with a face of disappointment

Types of Predatory Loans 

There are several types of personal loans for bad credit that are considered predatory loans. Borrowers should avoid these loans at all costs. 

These types of personal loans for bad credit include: 

  • Bait & Switch 
  • Asset-based lending (equity stripping) 
  • Loan flipping 
  • Loan packing 
  • Negative amortization 
  • Balloon payments 
  • Reverse redlining 
  • Risk-based pricing 

To learn more about these types of loans and how they negatively impact borrowers, read our blog post “Avoid Car Title Loans and Other Predatory Loans.” 

A Better Option: Personal Loans for Bad Credit From Focus Federal

For more than 65 years, Focus Federal Credit Union has been committed to anticipating our members’ needs and delivering products, services, and excellent member services. 

For us, that includes all of our members – even those in a challenging financial position. We know that good credit is crucial to overall financial health. Our personal loans for bad credit (or no credit) are designed to help you improve your score. 

Fresh Start Personal Loans from Focus Federal 

This personal loan for bad credit does two things: build your credit and your savings. When approved for a Fresh Start Personal Loan, you will choose between a $500 loan or a $1,000 loan. Focus Federal will place half of the loan amount on hold in your savings account. For the duration of the payback period, you’ll earn share dividends on the amount. Once the loan is repaid in full, the funds are released. 

Fresh Start Personal Loan Qualifications

  • Verifiable employment history for the past six months 
  • Two recent pay stubs 
  • Enrollment in payroll reduction and other automatic payment options 

Fresh Start Personal Loan Benefits and Features 

  • Build your credit while building your savings 
  • Predatory loan alternative 
  • Six to 12-month terms 
  • Credit counseling and in-person loan closing 
  • Ability to borrow at better rates in the future if paid off within the terms

What if I Have No Credit? 

If you have no credit history, it means that you don’t have a history using credit or you lack sufficient data for the credit bureaus to calculate a score. Having no credit is better than bad credit because building good credit from scratch can be easier than rebuilding it.

However, getting a personal loan for no credit can be as challenging as getting a personal loan for bad credit. Even if you have a reliable income but no credit history, you will be seen as a risk because you don’t have a track record. 

Focus Federal offers a personal loan for no credit as well. 

Credit Builder Loans from Focus Federal

Our Credit Builder loan helps our members with no credit history to establish and build their credit. The loan amounts are anywhere from $250 to $1,000. 

Credit Builder Loan Qualifications

  • No established credit history 
  • No derogatory payments 
  • Six months of income that Focus Federal can verify

Credit Builder Loan Benefits and Features

  • No credit score requirements 
  • Establish your credit 
  • Increase ability to borrow at better rates in the future 
  • Terms between six and 12 months 
  • A discount of 0.50% with autopay 
  • In-person loan closing with credit counseling 
  • Access to Credit Builder Toolkit 

Whether you need a personal loan for bad credit or no credit, Focus Federal has options. Let’s talk to figure out which option is best for you. Become a member today to take advantage of our products and services.