How to get a personal loan with bad credit?

Whenever you use any type of credit account, the activity on that account is reported to at least one of the three major credit bureaus in the US: Equifax, Experian, and TransUnion. These businesses track and store about ten years' worth of your credit account details in their massive databases.

If you always keep your credit card balances low, pay your credit card and loan bills on time every month, and make at least the minimum payment, you are helping to build a positive credit score. If you carry large revolving debt balances, miss payment due dates, and ignore your accounts, your credit score will drop quickly.

So credit scores are an attempt to gauge the likelihood you will repay a loan. They range from 300-850. The higher your number, the better. Bad credit scores start at 650 and go down from there. People in this category are considered a high risk and pay the highest interest rates. They are prime targets for bad credit loans. The definition of a “good” and “bad” credit score does vary from lender to lender. Some lenders won’t touch anyone with a credit score under 650, some explicit consumers with a sub-650 score.

The exact range setup:

If You Have Bad Credit, a Letter of Explanation Could Help. For example, a letter of explanation could be the difference between getting your loan application approved and having it denied.

This might be surprising to hear, but certain important financial decisions can hinge on something as simple as a letter. Letters of explanation are an important part of the lending industry; they allow borrowers to clarify certain items in their financial history, including a bad credit score. An explanation letter is submitted as a part of a loan application process in order to explain certain aspects of your finances that might otherwise raise a red flag. These kinds of letters are necessary because sometimes there is more to a particular situation than meets the eye. Sometimes perfectly normal transactions can look suspicious if, for instance, they were done in cash; other times a recent change of job or address will trip up underwriters and require clarification.

How to write a letter of explanation?

The key to a good letter of explanation is to cover all possible derogatory marks, gaps and extenuating circumstances that may catch the underwriter’s attention. Be specific, and include dates, details and supporting evidence for each scenario you describe.   While letters of explanation generally are typewritten, it is noted that lenders may accept letters in any form, from handwritten with pen and paper to email. Regardless of how you submit your letter, use a standard business format, address it to your underwriter or mortgage company and include your name, the date, and your contact information. Your loan officer can help you collect supporting documents and compose your letter. It should include:

• Facts and supporting evidence for each issue. Include specific dates and dollar amounts, and avoid placing blame for any negative situation
• Steps you took to resolve each issue and the date of resolution
• Specific steps you’ve taken to ensure the situation doesn’t happen again
• Documentation, such as medical bills, credit card or car loan statements, divorce papers, and tax documents, that backs up your explanations and timelines
• Your signature

Check your letter for spelling, grammar and formatting issues before you submit it, and follow your loan officer’s instructions. A letter of explanation helps your lender understand you better. Use it as an opportunity to show that you are a responsible borrower who can manage big financial obligations like a mortgage.