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Installment loans allow you to make regular scheduled repayments. They include mortgage loans, auto loans, student loans, and personal loans.
However, to be eligible for an installment loan, you must have a good credit score. It’s harder to qualify for installment loans with bad credit, and even if a lender agrees to offer you a loan, it’ll usually have a higher interest rate.
The best bad credit alternatives to gain eligibility for an installment loan is by improving your credit.
Your payment history has the largest part in determining your credit score. That means it has the most impact. Therefore, you should work hard to ensure all your bills are cleared on time.
To avoid late payments, you can;
Credit utilization is the part of your credit limit that you’re using. It has the second-highest impact on your credit score after your payment history.
To improve your credit, ensure your total outstanding balance on any credit account is 30% of your credit limit or less. If possible, lower it to 10%.
Another way of reducing your credit usage is by requesting an increase in your credit limit as long as you won’t increase your spending.
While you should only take loans when you need them, keeping a variety of credit accounts such as a mortgage, car loan, and a credit card can show you can manage debt.
Each type of credit account can benefit your credit situation differently. However, ensure you make your payments on time. Otherwise, the different accounts will act against you by lowering your score even further.
When you repay the loans and bills on time, they can remain on your credit reports for up to 10 years. Consequently, qualifying for an installment loan will be easier.
In addition to limiting your credit usage to 30% of your limit, work to pay off credit card balances. Pay off the cards with the highest or maxed out balances first.
This will not only reduce your debt but also improve your debt-to-income ratio. The ratio is not used to determine your credit score, but most installment loans lenders use it to determine your eligibility.
Do you have several outstanding loans? You can take a debt consolidation loan to pay all of them off. You’ll then have only one loan to take care of.
Sometimes, you can even get a loan with lower interest rates. This way, you’ll be able to pay your loan faster. You’ll reduce your credit utilization ratio, improve your debt-to-income ratio, and consequently, your credit score.
Even though more credit accounts help, you should limit your requests for new accounts. Application for a new credit card, car loan, or mortgage loan is a hard inquiry and can hurt your credit score.
It can be interpreted that you’re having financial difficulties, thus, more risk. While an occasional application may not have any effect, avoid new credit accounts when trying to qualify for an installment loan.
Getting installment loans with bad credit is not easy. Your credit score (among other factors) determines your eligibility for an installment loan. You may not qualify, and even if you’re offered one, the interest rate will be high. Focus on improving your credit using the tips above as bad credit alternatives to qualify for an installment loan.
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