Rejected for a Bad Credit Loan? Here’s Why.

When the COVID-19 pandemic shut everything down a couple of months ago, so many people were laid off, furloughed, or let go from their jobs that the unemployment rate quickly rose to depression era levels.  Unfortunately, most people were unprepared for the financial emergency that came from going without a paycheck for days, weeks, and in some cases, months.  Small business owners were forced to close businesses.  Hourly and salaried workers were laid off.  Cash quickly became hard to come by for so many of us.

Monthly BudgetFast forward a few weeks and the pandemic is now showing signs of winding down, and it appears as though things are beginning to open back up.  If you’re one of the lucky ones, and you’re being called back to work, then you’ll be able to start putting your life back together sooner than many.  And one of the first areas you should address is your financial life.

If you missed payments on any of your monthly bills, you’ll soon be asked to pay up.  That mortgage or rent payment that was deferred?  Yep, it’s now due.  Utility bills?  Also due.  If fact, money may be even tighter than it was when you were self isolating at home, simply because all of those bills that you couldn’t pay before are now due and payable.  So, how will you cover it?  One option that you have, even if your credit is bad, is to get a loan to cover the extra expense, consolidate bills, or simply to just catch up.

But, if you have bad credit, what’s to keep you from being rejected?  Here are the most common reasons that people are rejected for loans, even those marketed for people with bad credit:

  • Bad Credit:  Keep in mind that, even though a loan is marketed as being for people with bad credit, not everyone with bad credit will be approved.  Your credit score may be too low to qualify, especially if your reason for requesting the loan is not what the lender is expecting.  Is your low credit score due to a financial emergency, such as loss of employment or illness?  Perhaps you got carried away with your spending habits when you were younger?  Have you been making an honest, continual effort to repay those bills for a period of time?  If so, lenders are more likely to work with you.  But, if you have a history of defaults, late payments, etc., that demonstrates a lack of financial responsibility, chances are you will continue to be rejected until you can prove that you have changed and have begun working on repairing your credit damage.
  • No Credit:  Unfortunately, a lack of credit history demonstrates nearly as much risk as does a poor credit history.  Without a credit history, lenders have no track record to use to determine if you will pay them back.  So, if you have no credit history, you should take some steps to build one.  Start with a bank account, then get a couple of credit cards that you use sparingly and pay off each month.
  • Lack of Collateral:  Some loans require the use of collateral to secure the loan.  Collateral, such as a home or a vehicle, is pledged against the amount of the loan. Essentially, you are showing the lender that you have property that could be sold to get you the money you need, but you are simply requesting a loan instead.  Of course, if you do not repay the loan, the lender will simply take your car or home as repayment.
  • No Income:  Unemployment will not always prevent you from getting an unemployment loan, but those are special loans.  Fast loans for people with bad credit are not unemployment loans. For a fast money loan you need to show to the lender that you have a means to pay back the loan and that requires a steady source of income.

There Are Options

Remember, it’s not the end of the world if you’re rejected.  There are still options.  You can borrow from a family member if you’re desperate, or find a cosigner with better income and better credit to help you qualify.  Keep looking.  The internet is full of lenders.  If you look long enough, you may find someone who will work with your specific circumstances.  And if not, keep working on your credit!  You will eventually get there.

 

Should You Skip Your Mortgage Payments Now?

Right now, an unprecedented number of Americans have lost their jobs, lost a large portion of their income, or worse, and simply aren’t able to pay their bills.  But what about you?  What bills should you pay?  And what bills should you skip?

Truthfully, if you have the money, you should pay ALL of your bills as usual for as long as you can.  Don’t be one of those people who are still working, yet use the pandemic to skip a mortgage or car payment.  Believe me, you will be sorry in the long run if you choose to go that route.  We still don’t know what the fallout with respect to our credit reports (and credit scores) will be as none of the legislation that has been enacted either directly or indirectly addresses payments that are skipped during this unprecedented time.  Already, we’re seeing lendors of all types, from home mortgage lenders to credit card providers, put stricter requirements in place to even qualify for a new loan, and/or cut back on credit limits, the types of loans available, and more.  So, if you can pay your bills, do so.

However, if you cannot pay your bills, the most important thing that you should do is to sit down and see what your options are with each and every bill that you have.  Does your mortgage provider have a forbearance option?  If so, will that affect your credit report, and if so, how?  What about your car loan?  If there is no effect on your credit score, these may be your best options.  If not, then look at your credit card bills.  Many are offering some type of special payment arrangements, but again, ask what effect this will have on your credit score.  Next, look at your local utility companies.  Many states have passed legislation regarding utility services, so chances are, your local providers will not shut off service if those bills are late, so that may be a viable option if you are strapped for cash.  The main thing is that you look at all of your options.

Whatever you do, don’t just stick your head in the sand.  Communicate with each and every one of your creditors for any bills that will be late, even if it’s only a few days.  Let them know when to expect payment.  Request that late fees, if any, be waived.  Request that they not report it to the credit bureaus.  And, if they do, make sure that you add a statement to your credit file explaining why the payment was late.  As hard as it may be to address these issues now, it will save you years and years of grief in the long run.