how to take out a loan with bad credit

How to Take Out a Loan With Bad Credit

April 13, 2021 4:44 pm Published by

A loan can help you out of a tight spot, help you pay for something you can’t afford out-of-pocket, and is great for building credit (but can hurt your credit, too). Whatever the reason is, you may already know that your credit score is important to the lender. So how do you take a loan out with bad credit? Luckily, there are ways — you just need to know what to look out for. 

What is Bad Credit?

Understanding how to take out a loan with bad credit starts with knowing what the definition of bad credit really is. To start, your credit score is created by evaluating the following:

  • Payment history
  • Credit usage
  • Length of credit history
  • Types of accounts
  • Recent activity

Then, a score is generated ranging between 300 and 850. Let’s take a look at how FICO ranges credit scores so you can see where you fall:

300-579: Very poor 
580-669: Fair
670-739: Good
740-799: Very Good
800-850: Exceptional 

According to Experian, a bad credit score is anything below 670. But your credit score can vary depending on the reporting agency and score model for a number of reasons: the time it was pulled, the data that the credit bureau reports on, and more. Learn more about that works here.

How credit scores impact different types of loans

Different credit scores can impact your eligibility for different types of loans, sometimes by determining the interest rate you’re offered, and sometimes by preventing you from getting a loan altogether. For instance, it might be very hard for someone with bad credit to get a mortgage, which you usually need at least a 670 for, or a home equity loan for which you need at least a 620. Although other factors are considered, the credit score does have a weight of importance.

On the other hand, a bad credit score could make you a good candidate for other types of loans, like payday loans. Just keep in mind that, unfortunately, there can be a lot of loan sharks out there that will take advantage of people with bad credit by imposing predatory interest rates on everything from payday loans to car loans. Typically, if you see a place that offers loans with no credit check, you’ll want to walk the other way. 

Ask Yourself: What is the Loan For? 

Are you looking for a mortgage or a payday loan? A car loan or a student loan? Will this loan help better your finances in the long run? Will it help you to gain generational wealth, or set you back even further? Is it a temporary solution to a problem that could potentially be addressed with a different solution, first? 

Weigh the pros and cons

Every loan has its pros and cons, no matter the reason for needing it or your credentials for getting one. Here are some pros and cons to weigh in your decision-making process.


  • If you do get approved, make sure to make your payments on time, as this can help your credit score, too.
  • Loans can help you afford things you may not otherwise be able to.
  • If done right, loans can help you get ahead financially.


  • A hard inquiry on your credit report can lower your credit score.
  • It can be problematic or hard to successfully take out a loan when your credit is already poor.
  • Sometimes, loans for people with bad credit come with restrictive terms and conditions, such as high interest rates that can put you in even more debt.

Explore Your Options

Now that you understand your credit score and have determined that you’re ready to learn how to take out a loan despite your bad credit, it’s time to explore your options. There are so many different lenders for bad credit out there, so the amount of options available can be rather overwhelming. It’s definitely OK to shop around for different loan lenders depending on what your needs are. 

Ask for recommendations

Not sure which lender to go with? Ask for recommendations! Ask a friend, your colleagues, and/or check out one of the many review sites out there so that you can easily compare lenders side-by-side to see what’s best for you. Even going to a search engine and typing in “best loans for bad credit” can be a good place to start.

Keep in mind that once you have narrowed down the lender to a few promising options, be sure to visit each of those websites directly for more specific information regarding each loan.

Get a Pre-Approval

Most lenders and/or sites will ask you to fill out a pre-application with some information regarding your credentials, what type of loan you need, and for how much. This usually incurs a soft hit on your credit, which, unlike a hard inquiry, does not impact your credit score (which wouldn’t be something you want if your credit is already bad!). It helps them to determine your eligibility and ideally provide you with a pre-approval.

Compare interest rates 

One thing you really want to look at is the interest rate you’re being offered by each lender. In general, a bad credit score usually means that you may not get the best interest rates, but not always. Because some lenders specialize in giving loans to people with lower credit scores, interest rates have to be within a range to get business.

Read the fine print

No matter the interest rate you’re being offered, you’ll also want to go ahead and read the fine print to understand the other terms and conditions. How much time do you have to pay off the loan? Are there prepayment penalties in case you want to pay the loan off sooner? These are questions you’ll want to ask. 

Apply for Your Loan

If you’ve made it this far, then hopefully you’ve been able to see that it isn’t so hard to get a loan with “bad” credit; you just need to be patient and do your research. Once you’ve chosen the lender/loan for you, fill out your application and apply. 

Depending on how the lender operates, you should already have an idea of what you’ll be approved for, at what rate, and what terms and conditions. You should also know how long it will be until you get your loan. Good luck.

Try and improve your credit score 

If you’re not too interested in the offers you’re seeing for a loan with bad credit, there is another option. If you don’t need the loan right now, consider trying to improve your credit score in the meantime. 

ScoreMaster will help you identify how to improve your score with actionable steps for the short and long term. This can put you in a much better spot in the future when you want to apply for a loan again. 

FICO – What is a Credit Score?
Experian – How to “Fix” a Bad Credit Score

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This post was written by David B. Coulter

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