The average US FICO score hit a record high of 703 in 2019, as more Americans continue to monitor their credit reports through a wealth of free online services. While that may seem all fine and well, with 66% of US citizens having a good to exceptional FICO score (670-850), that still leaves 34% of Americans with a fair to very poor score (300-669).
Notably, a poor credit score can cause many financial setbacks for a consumer, as it hampers their ability to apply for financial services (e.g., a new credit card), while also having a negative effect on securing other life necessities, like buying or renting a home, getting a new job, and paying for all types of insurance.
One of the toughest obstacles for people with poor credit is securing a large sum of money, whether it’s needed to fund a major purchase or pay off mounting debt. While there are credit card offers available that don’t rely on credit checks, which are useful for building credit back up, they often come with low credit limits that prohibit large transactions.
Getting Financially Empowered With a Personal Loan
For consumers with bad credit in need of large funds, an unsecured personal loan can be the solution they may not have thought was possible. Unlike home and auto loans, personal loan offers are more widely available for prospective borrowers with bad credit. The growth of online lenders in recent years has created an expanded, fintech-powered market, causing personal loans to become the fastest growing consumer lending product.
While it’s tough to get approved with a credit score in the 500s, there are online personal loan offers available in the five-figure range. Being able to borrow an amount that high can help people with poor credit: refinance credit card debt, consolidate multiple debts, or pay for a major life event (e.g., wedding).
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Having a Firm Plan in Place
While applying and potentially being approved for a personal loan is an exciting prospect for consumers with poor credit, it’s important to take a comprehensive approach to the entire lending process. Securing crucial funds is great, but the repayment plan that follows requires careful planning and assurance on the part of the borrower.
Of utmost importance, a borrower should select the loan terms that best match their financial situation. A typical five-figure loan for a borrower with poor credit can include a three-year term (i.e., repayment schedule) with fixed monthly payments. These installments can range from a few hundred dollars to over a thousand dollars, so the consumer must be confident that they can maintain monthly, on-time payments throughout the life of the loan.
In addition, the lower a borrower’s credit score the higher the likely interest will be in the form of APR (annual percentage rate). APR, which includes additional lending costs and fees, is baked into the monthly payments, but adds up over the course of a multi-year loan. Consumers should always strive for the lowest APR possible when applying for a personal loan, as it will save them money in the long run.
Living with a poor credit score is tough, but it doesn’t mean that all of life’s doors are locked. Applying for an unsecured personal loan can help consumers with low scores refinance or consolidate debt, or pay for a big life expense. Better yet, if you pay off the monthly bill on time, your credit score will ultimately thank you for it.
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