How can you take out a loan with a bad credit rating? An essential prerequisite for any loan is a sufficiently good credit rating. This addresses the overall economic situation of the person seeking credit. You must be financially in a position to repay the loan, including the interest on the loan, as contractually agreed. To ensure this, the lender assesses the applicant’s creditworthiness before making the final credit decision.
How can I improve my credit rating?
You can improve your credit rating with a few small tips:
- Check your credit data regularly and correct wrong entries immediately.
- Get your credit prescription from Climb – they can help you determine how and what to fix specifically.
- Review and request the removal of any incorrect information.
- Avoid unnecessary accounts and credit cards
- Pay bills and loan installments on time
Why is a credit possible with a bad credit rating?
The loan seeker should be aware that the bank is very interested in lending. However, it has to balance the business profit with the lending rates on the one hand and the business risk of non-fulfillment of the credit agreement on the other hand.
The bad or bad credit rating is such a credit default risk. If the loan seeker succeeds in eliminating the lack of his own credit rating, the bank will have no objections to lending. The applicant must become active in this situation. He can choose from the following credit enhancement options:
- Provision of a guarantor
- Borrowing together with a second borrower
- Reduction of the loan amount due to the low credit rating
Improve your credit rating by controlling your data
Your credit rating will be calculated based on personal data, payment history, negative features such as collection and court data and bankruptcy procedures. However, credit bureaus do not work flawlessly. Over a third of credit information is broken, outdated, or incomplete. Even though you have always paid your bills on time, it can still be the case that in your credit report false data creep in or completed features were not deleted. In extreme cases, this can unfairly affect your credit rating. To counter this, we recommend that you regularly check your data for accuracy.
Improve your credit rating by keeping track of the deletion deadlines
If you have an entry in your credit rating, we recommend that you wait with the loan application until the deletion period of the entry has expired. If the entry on your credit rating has disappeared, your credit rating may improve. This, in turn, increases your chances of concluding a contract and favourable conditions.
You should also note that the deadlines usually only occur when you have paid the appropriate amount. Open procedures can last longer in your credit rating.
Our tip: Always pay your bills on time and avoid negative entries. If you forgot to settle a bill, you will learn how to respond properly to reminders. If you still find the negative entry after the expiry of the deletion period in your credit data, you should contact the responsible credit agency, and report the error. Incorrect or obsolete entries are deleted immediately.
Improve your credit rating by cancelling unnecessary checking accounts and credit cards
Multiple accounts and credit cards are considered by credit agencies to be unreliable. That’s why we recommend that you cancel the unnecessary accounts so they do not lower your credit rating.
Improve your credit rating by controlling your finances
If you pay your bills on time, you will save not only expensive dunning fees. In the worst case, unpaid bills land after two reminders at the collection agency, which in turn can result in a negative entry. A delay, however, may only be mediated to the credit bureau if the consumer has been reminded twice and four weeks have passed after the first reminder.
How can a guarantor help?
With the help of a second person, be it a guarantor or a co-borrower, the credit problem is solved in many cases. The lender checks the creditworthiness according to the same criteria. Figuratively speaking, he adds two average ratings to a good one, or the good to a very good credit rating of the second person completely replaces the lack of bad creditworthiness of the applicant.
The bottom line for the bank is to minimize or even eliminate its credit risk. The reduction of the loan amount does not make a poor credit rating as such better; the lender merely reduces its financing risk because it is correspondingly smaller with the lower loan.