Although the process of being approved for a loan varies depending on the lender and their specific credit requirements, most lenders and financial institutions follow the same basic methods to determine the creditworthiness and borrowing eligibility of an applicant. Unfortunately, simply being denied for several loans consecutively can subsequently decrease your chances of obtaining approval for a loan in the near future. This creates a challenging situation because many aspiring borrowers are confused about how they can improve their credit if they cannot even be approved for credit. It is a classic paradox – how can credit be built if credit is not extended?
Utilizing Collateral and Finding Easily Obtainable Lines of Credit
Fortunately, there are some types of credit cards and loans that are granted to people with poor credit, which gives them an opportunity to begin rebuilding their credit if they are able to responsibly make payments on time and in full. However, the defaulting on poor credit loans often results in exuberant penalty interest rates and many credit cards and loans that are offered to subprime borrowers have less than ideal terms and conditions. Nonetheless, it is possible to obtain a secured credit card or loan using collateral and/or a cash deposit. Most secured credit cards require a cash deposit that is equal to the amount of the credit line, and the majority of these cards have credit limits they did not exceed $500. When trying to use a secured credit card to rebuild your credit score is important to ensure that the card issuer files items with at least one of the three main credit reporting agencies – TransUnion, Equifax, and Experian.
Renting Inexpensive Property
There are many rental stores that will allow you to rent inexpensive property such as furniture and electronics regardless of whether you have poor credit or no credit at all. These places usually require some form of proof of employment, so it would be best to bring to check stubs from your current employer. You may also be required to list several references, and the interest rates are typically higher. However, some rental companies will file positive items on your credit report if you’re able to consistently make payments on time and in full. People with poor credit may also be able to to rent a cheaper vehicle that costs anywhere from $500-$4000 with a down payment of $500-$1500, depending on the terms and conditions of the dealer. These types of vehicle rentals are usually offered by companies that handle their own financing. Any type of credit that can be extended to you and will have an impact on your credit report can help you rebuild your credit score.
It is also possible to receive approval for a home or vehicle rental by having someone with good or exceptional credit cosign for you. By cosigning the partner is basically vouching for the applicant’s creditworthiness, while also promising to cover payments in the event that the borrower defaults. It can be difficult to find someone that will trust you enough to cosign for you, as your mistakes could cause their credit score to be damaged if they’re unable to cover your payments. When searching for a cosigner is best to start with family members, spouses, and close friends, as this is a serious financial commitment. When someone cosign for a loan or credit card in a joint application the prospective lender calculates the average credit score of both applicant’s combined. Thus, to people with poor or below average credit could not help each other by cosigning, as it would not raise the average score enough to affect the outcome of the approval process.