Line of Credit For Bad Credit – 4 Alternative Ways
Getting a line of credit for bad credit holders is hard but possible. A Consumer Credit Review of Experian says that 16% of Americans fall under the bad credit category with credit scores between 300 to 579. There is a widespread belief that bad credit holders will find it hard to get approval for loans. This article will take you on a tour of the lines of credit and help you understand if bad credit can secure a line of credit.
Line of Credit for Bad Credit
Should credit users maintain good credit scores to get approval for their line of credit application? This is quite a common question that people usually contemplate. Similar to most loans, the line of credit also requires a decent credit score. Personal loan lenders will expect a good credit score that can convince them about the applicant’s creditworthiness.
What Is a Line of Credit?
A line of credit is a credit account where a user can borrow money repeatedly up to a fixed limit. These types of credits are unsecured personal loans as they do not require any collateral for securing loans.
Line of credit works more like personal loans as these loans are available with lower interest rates. But, unlike personal loans, this line of credit does not provide the users with a lump sum of money in the first place. Instead, the borrowers will only get approved for the sum of money that can be borrowed later. So, they can just make repayments on the borrowed money only.
Factors To Qualify For A Line of Credit
This line of credit sounds easier than credit cards and personal loans as people have the advantage of withdrawing only the required amount and paying lower interest for the drawn amount might sound great to users. However, users should also know what it takes to get approved for these loans.
Here are some of the factors that matter in the case of a line of credit.
Pay Interest on the money you use – One special feature about LOC is people can pay only the money they borrowed though they got approved for a lump sum of money. If the users borrowed only a small part of the whole approved amount, they can only pay interest for the borrowed amount.
No collateral is required – Most of the lines of credit are unsecured loans as they are not meant to pledge any collateral property or amount to avail of the loan. The loan borrowers must consider this fact and try to avail line of credit (LOC) without submitting any security.
Fees vary with institutions – Line of credit options will mostly require a minimum monthly payment. Credit users must pay a certain amount as a fess along with the amount borrowed. Some institutions charge a fee each time they use a credit line while other institutions charge monthly or annual payments. In this case, the customers should make sure about the applicable charges before getting a credit line.
No-fixed interest rates – The line of credit will have variable interest rates. As the monthly payments are based on the borrowed money and the interest rates of the vendor, you will not have fixed amounts to pay every month. The better practice is to be aware of the interest rate and self-evaluate yourself if you could afford it.
Credit score matters – One most important things to consider is the credit score. Although there are options for people to secure a line of credit with bad credit, the truth is that it is not easy. Bad credit personal loans are a bit harder using loan approvals.
Required Score For A Line of Credit
Knowing that credit score is a vital element for many personal loan lenders to approve a line of credit, it is necessary for users to know the minimum credit score requirement. According to FICO.com, credit users with good credit scores like 669 can easily get approved for a line of credit. As personal loans are not secured by assets such as a car or a home, your credit rating is based on your ability to repay what you borrowed.
Can Bad Credit Get LOC?
Reputable lenders consider credit scores as the primary factor for approving loans. So does this mean that base credit holders or no credit holders can never imagine a line of credit in their lifetime? No. While people with good credit scores enjoy the credit benefits to the fullest, bad credit holders will not make use of those advantages like lower interest rates, no collateral, and a few others. It’s best to have a look at the ways for bad credit scores to secure a line of credit.
Ways To Get A LOC With a Low Credit Score.
Take Help From A Good Credit Scorer
When credit users have low credit scores, they fail to earn the trust of loan vendors. In this case, the bad credit scorers can take help from a good credit holder. If a good credit holder signs the loan agreement along with the borrower, the loan vendor will consider approving the loans. However, the co-signer will have to face the consequences if the borrower doesn’t repay the loan on time.
Submit A Collateral Security
When a loan vendor is not satisfied with the customer’s credit score, they will look for some other assurance to approve the loan applications. To convince the loan vendor, the borrower can pledge any of their property as security. If the borrower can not pay off the loan by the stipulated time, their collateral security will get at risk. Although lines of credit are mostly similar to unsecured loans, availing of a secured loan is the only choice for low credit scorers.
Open a Bank Account
Opening a bank account with a good sum of deposit money will help bad credit holders. The loan company will consider this high-valued bank account to approve loan funds.
Get Advice From Credit Service
The other worthy alternative for bad credit holders is to go to a credit service. There are many credit repair services in the market that can help their customers boost their credit scores. These agencies will help you identify the errors in your credit report and fix them on your behalf. People can also make use of their expert advice to boost their credit scores.
Frequently Asked Questions
1. Is it possible for a bad credit scorer to get a line of credit?
Yes, even poor credit scores can get a line of credit. However, they could not make use of all the benefits like people with good credit scorers. While credit scores will help their owners to get approved for all loan options with lower interest rates, it is slightly difficult for bad credit holders. They may want to pay extremely high-interest rates to get approval for a loan.
2. Is it advisable for users with bad credit to go for a line of credit?
Although bad credit holders can get approved for a line of credit in the name of a secured line of credit, they must pledge a sum of money as their security. This is because the loan vendors can not risk losing their money if the borrowers fail to pay them back.
3. What are the ways to improve credit scores?
Maintaining a regular payment history is the best way to improve your credit score. Making payments on time is a highly considered factor in credit score calculation. Also focusing on other factors like credit utilization ratio, and new credits can help users to prioritize their loan options.
4. What are the types of lines of credit?
Revolving credit, secured credit, unsecured credit, personal credit, and home equity line of credit (HELOC) are the five types of lines of credit.
5. What is the minimum credit score for a line of credit loan approval?
669 is the minimum credit score to get approval for a line of credit.
Line of credit is depicted as the right option for people who are expected to have unplanned medical bills or other expenditures. The lines of credit are the way for users to access cash from the approved money and pay only for exactly how much money they borrowed with less interest rate.
If you are one among those people with bad credit scores, you cannot easily get approved for the cash advance which you can borrow whenever you need it. To qualify yourself for such loans, you can go for a secured line of credit option or take help from a co-signer. Apart from all these, you can also go for credit repair agencies. TheCreditPros is one of the most popular credit repair services that offer quality service at a cheaper cost. For more details, you may reach them here.