Working Around Bad Credit

Missing credit card or loan payments, declaring bankruptcy or holding onto debt can all lower your credit score. Bad credit is typically defined as having a credit score of 600 or less, but any score under 670 will likely impact your ability to get the best rates on financial products and meet immediate credit needs. But there’s no need to lose hope! Read on for a few ideas on how to work around bad credit and get your money management back on track.

Renting an Apartment

Some apartments will only accept tenants with a credit score of 620 or above. If you’re searching for a place to live, try looking for smaller landlords instead of working with a large property company that might deny your application on-face. With a smaller landlord, you may be able to approach someone on a more personal basis to explain your situation. Consider providing other financial documentation or personal references, such as a recent bank statement, a letter from an employer, or a reference from a college professor who can attest to your responsible nature. You might also consider offering to pay a larger deposit up front. A personal letter explaining your circumstances—for example, if your bad credit is the result of decisions made by an ex-spouse—could be useful as well.

Home Ownership

Having a lower credit score can affect your home-buying ambitions in a few different ways. Firstly, you might not qualify for a mortgage if your credit score is below 620. On the other hand, if you do qualify for a mortgage, it might not offer the amount of money you need to purchase your dream home. While there are home loans available for people with lower credit scores, these often include unfavorable terms or sky-high interest rates—so be very cautious when considering a loan. A better option may be to focus on improving your credit score for a year or two, then re-evaluate your property plans. Another options is to find a co-signer, such as a parent or older family member. A co-signer can give your loan application a better debt-to-credit ratio, to increase your chances of approval. Just remember that if the main borrower on a co-signed loan defaults, the other party will also be held responsible.

Buying a New Car

There is plenty of financing available for car-buyers with low credit—but beware! Many of the so-called “deals” for auto financing include junk fees and high interest rates that significantly increase the cost of the vehicle. Be especially wary of “Buy Here Pay Here” dealerships, which are designed to finance auto loans for low-credit customers but often saddle customers with high APRs, unnecessary fees, and unreliable vehicles. If your current vehicle is unusable and you can’t live without a car, considering purchasing a used vehicle outright instead of getting a loan. Or, check in with a reputable financial organization such as your credit union or bank about what car loan options are available.

Applying for a Credit Card

If you have bad credit, you might have trouble getting approved for a traditional credit card. The good news is that there are cards specifically designed for people with lower credit. These cards typically come with a smaller-than-average credit limit and may require a deposit up front. As always when it comes to financial products designed for people with low credit, beware of hidden fees and remember—if a deal looks too good to be true, it probably is. Whatever card you choose, be sure to pay your bills every month so that you don’t lower your credit score even further. Indeed, paying off your balance every month is a great way to steadily raise your score! You might also consider transferring debt to a 0% intro APR card, so you can pay your bills while avoiding more interest.

Good Credit in the Future

Interested in learning more about how to improve your credit score while also managing debt? Check out this HUECU blog for tips, including what debt to pay off first and how to make an impact on your credit utilization ratio.