If you have a FICO credit score below 630, then you have joined the throngs of Americans suffering from bad credit. Whatever curveball life has thrown to land you with that score, you needn’t give up hope. Debt consolidation is a legitimate path for those seeking to improve their situation, and in the short-term, personal loans can help with any unexpected or large expenses.
But you’ve learned this lesson the hard way: you need to be careful with your finances. That includes choosing a loan and a lender to fit your situation.
Investigate Your Lender
The internet is rife with scams and traps, but you can avoid becoming a victim with proper due diligence. Start by ensuring the lender you are researching is licensed to work in your state by contacting your state’s financial institution regulatory bureau.
Next, ensure their web address starts with “Https” instead of the standard “Http.” This indicates the site will securely protect your information and be difficult to compromise. Once you know the business side is secure, take a look at their customer service. Are they transparent in their fees and terms? Read through the fine print. Legitimate lenders won’t ask for fees up front; most will work any origination fees from your loan bill, so your monthly bill is all you pay.
Know the Difference Between Secured and Unsecured
An Unsecured Loan means the lender is taking you at your word. You sign a contract promising to pay. If you have trouble with payments, they may seek the assistance of a collection agency or possible legal action.
A Secured Loan means the lender wants something more solid; a piece of your property is offered for collateral. If you can’t pay, they can legally seize the property and sell it to recoup their losses.
Watch the Big Picture
While Title Loans and PayDay loans may tempt you with flashy advertisements and smiling faces, many of these companies are predatory and can lead to even worse credit in the future.
The safer option is to choose between a credit union or a highly rated online lender to help with your situation. Take into account their various interest rates and monthly payment plans. You should also ask if they report on-time payments to the credit bureau, as this will help improve your score over time.
Taking the Next Steps
Bad credit doesn’t have to ruin your future— even the most damaged scores can be rebuilt. While debt consolidation and personal loans help, the first step is to form good habits.
Keep careful track of your budget, and know what payments are feasible for you. Find a lender who can work on your terms instead of making you conform to theirs. Finally, only work with companies who offer soft credit checks. Hard credit checks cause further harm to your score, and no credit checks are a red flag for predatory behavior. If you don’t know your score, consider soft checking through services such as CreditKarma or NerdWallet to avoid penalizing hard checks later.