We live in a world where living off credit has become a way of life. Throughout all of North America, many consumers have gotten into the habit of depending on unsecured debt as a way of maintaining a certain standard of living. Can you secure a loan with poor credit or no credit at all?
There is proof things may be a little out of control in Canada. The CBC News website reported last year that Canadian consumers were in debt to the tune of $1.44 trillion. Upon closer scrutiny, we can see that $769.4 billion of that debt could be attributed to consumer credit (credit cards) and non-mortgage loans. Why do these numbers matter to the everyday consumer?
When Canadian citizens are responsible for mounds of unsecured debt, poor credit issues are sure to follow. As a consumer who might have bad credit, you need to be concerned about your financial wellbeing. With poor credit or no credit as is usually the case for younger Canadians, it becomes very difficult to find financial resources when you might need them.
Before you hit the panic button…
Over your inability to get credit cards or a loan, you need to know all is not lost. There are several types of loans or credit facilities. You might still have these at your disposal despite having bad credit or no credit. In the sections below, we want to focus on some of those options as well as ways you might be able to improve your current credit score.
How to Secure Loans and Credit With Poor or No Credit
If you have a poor credit score or have yet to establish a credit rating, finding a lender to offer you credit is going to be a tall order. You will likely have to revert to lenders that do not require a credit check. The value of “No-credit-check loans” is your credit score doesn’t matter. Let’s look at a few of these options.
1. Payday Loans – Payday lenders don’t typically require credit checks. They’ll never know whether your credit is bad or not. In Canada, most payday lenders will lend up to approximately $500 if the borrower can produce a current payroll stub as proof of employment. The borrower might also have to show proof of a valid bank account. That’s all good news for consumers with poor credit.
Of course, there is a huge risk associated with payday advances. First, the fees payday lenders get to charge are ridiculous. On top of that, most payday lenders put forth very aggressive interest rates. The effect of big fees and high-interest rates is it puts a drain on the borrower’s monthly cash flow. If someone gets caught up in the cycle of repeatedly getting payday advances to cover their monthly cash shortages, they will eventually end up with no cash and more bad credit.
Given the pitfalls that come with this type of loan, this should be your last resort. If you have no credit, payday advances will not help you build credit because payday lenders don’t typically report anything to credit reporting bureaus unless something goes awry.
- Note: Some of today’s more aggressive payday lenders now offer installment loans. The loans can extend out as far as six months and often come in slightly larger amounts. Unfortunately, the fees and interest rates are still very high.
Payday Alternative Loans – Credit unions are always looking for opportunities to improve membership. If you can get approval to be a member of a credit union, you might be able to secure this type of payday loan. Credit unions don’t run credit checks for these types of lending options because of prior membership approval. In contrast to commercial payday advances, the fees on these loans are typically capped at around $20, and the applicable interest rates are more borrower-friendly, though still on the high side.
With this option, you can build or improve your credit if you make your payments on time. The reason this is true is that credit unions are in the habit of reporting borrower information to the credit reporting bureaus.
Personal Loan – If you are looking for a more traditional option, we at SkyCap Financial might be able to offer you a personal loan even with poor credit or no credit. As a responsible lender, our fees and interest rates are much more competitive than the fees and interest rates you would encounter in the payday lender realm.
If approved, we might be able to lend you as much as $10,000 with monthly installment payments. The interest rate we would charge you would depend largely on your current credit score. Even with bad credit, your rates with us would still be fair and far below what the payday industry charges.
How to Improve Your Credit Score
Before seeking a loan with bad credit or no credit, you might want to address the source of your problem. There are ways you can improve your credit score over time. Let’s look at three of these options.
1. Use a Cosigner – If you cannot qualify for a secured or unsecured loan because of poor credit, you could enlist the services of a cosigner with a very good credit score. With this option, you would get full credit on your credit history based on how well you manage the loan. If you make all payments on time, the scores of both you and your cosigner should improve.
2. Apply for a Credit-Builder Loan – Some financial institutions like to work with borrowers on credit building. With a credit-builder loan, the lender gives you money (loan amount), money that you have to place in a savings account as security. After you have paid off the installment loan, all of the money you paid will be returned to you along with good credit marks.
3. Apply for a Secured Credit Card – With this option, you would need to pledge a savings account as security for the amount of credit the credit card company is willing to offer. In many cases, that amount is approximately $300. You can use the credit card as a regular credit card, paying off charges as you go. If you fail to make payments, the credit card company will tap into your pledged savings. If you make all your payments on time, you will have established credit or improved your current credit score. Sometimes, the credit card company will step forward and offer unsecured credit cards to great customers who fulfilled their promises.
We hope you find this information useful. If you would like to know more please contact us as soon as possible.