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    6 Things You Must Know If You Need Long-Term Loans For Bad Credit

    long term

    Millions of Americans rely on some form of financing to pay for both large and small expenses alike. To fulfill these credit demands, long-term loans are among the more affordable ways to secure funding when compared to the interest rates that accompany credit cards and short-term alternatives. However, as a bad credit borrower, you may be concerned about your likelihood of approval for this type of lending product.

    In this article, we’ll focus on six important considerations that you’ll want to bear in mind before you apply for long-term loans for bad credit borrowers.

    Do You really have bad credit?         

    If you’ve recently obtained your free annual credit report, you may be wondering how good — or bad — your credit standing looks from the perspective of lenders. Lenders assess the strength of your application based on your FICO score. This figure ranges from 300 to 850 and the higher it's the better your chances of being approved for a loan and securing a lower APR. 

    The table below highlights the various categories of FICO scores and the degree of creditworthiness of borrowers in each category.

    FICO Score Range





    Very Good





    If your credit score is below 580, you fall into the bad credit category. This doesn’t mean that you can’t qualify for a long-term loan, but you’ll want to understand your FICO score and work on improving it to boost your chances of success. 

    How FICO Scores Work        

    Whether the previous section indicates that you have a good or bad credit, you may be curious about how FICO calculates your score and what you can do to improve your numbers. Your credit score is based on a combination of various factors that are calculated together and weighted slightly differently. These include:

    • Payment history (35%): Late payments or defaults can cause your credit score to drop significantly due to the relative importance of this factor
    • Credit utilization (30%): This refers to the size of your outstanding credit card balances divided by your total credit available. If this figure exceeds 30%, you’ll start to see a drop in your FICO numbers
    • Age of accounts (15%): If your credit accounts are in good standing, it’s always a good idea to keep them open because they contribute to a higher credit score
    • Credit mix (10%): Having a variety of lending products such as credit cards, loans, and mortgage accounts on your credit profile can help boost your score as long as they’re well-managed
    • New credit applications (10%): You’ll want to limit the number of new accounts you apply for in a given year because each hard credit check can cause your score to drop slightly

    Are There Loans Available For Borrowers With Low FICO Scores?     

    Having excellent credit certainly increases your chances of being approved for a loan or credit card, but that doesn’t mean that a low FICO score will prevent you from financing your important expenses. 

    • Borrowers with weaker credit can still qualify for loans as long as they choose to deal with a provider that specializes in lending for credit scores of 600 or less
    • If your FICO score is below 580, you may want to avoid large banks and focus your efforts on applying to bad credit lenders instead

    What Costs Are Involved? 

    Before you go ahead and apply for a personal loan, you’ll want to know what costs are involved both in terms of your monthly installments and the fees involved in your application. 

    • The two main costs involved in any loan are usually the annual interest rate and the fees involved in the application process as well as monthly charges and prepayment penalties
    • Most lenders combine the cost of interest and fees together using a figure called APR (annual percentage rate). This percentage tells you how expensive it’ll be to borrow the same amount from different lenders

    Can You Increase Your Credit Score?             

    Like many unhelpful situations in life, a bad credit score doesn’t have to be permanent. Here are several strategies you can implement to raise your FICO numbers over time.

    • Keep your balances down: By lowering the amount you owe on your credit cards, you’ll reduce your credit utilization and boost your credit score
    • Make your payments on time: Late payments can cause your score to drop significantly, especially if you let your outstanding balance build up over the months which can result in a charge off or default
    • Keep your accounts open: As long as you make your payments on time each month, it’ll definitely count in your favor to have a long credit history

    What If Your Loan Application Is Rejected?

    Despite your best efforts, you may end up applying for a loan only to have it rejected - but there are other financing options you can consider. 

    • Create a monthly budget: Having a monthly surplus in your finances can help you save up enough money to pay for your expenses or cover the installments on loans you may qualify for in the future
    • Borrow from your savings: If you have more than the recommended three to six months worth of expenses saved up, you may consider using some of these funds to pay for urgent expenses

    The Bottom Line    

    Long-term loans are an excellent choice for anyone seeking to finance their expenses affordably and a bad credit score doesn’t mean you can’t apply for one. 

    Knowing how your FICO score is calculated and taking the right steps to raise it will ultimately help boost your chances of loan application approval.