Generally, anyone who takes out credit from a reputable lender is provided with a credit score, a measurement of the likelihood that he, if given a loan, will pay it back on time and in full. This score will change often. If a score goes down, it may become harder for the score holder to get a loan, as he presents a strong risk of default to lenders. However, he may have several options.
Lending Options
A person with very bad credit may be able to take out a loan from a variety of lenders, but often only at a very high rate of interest. If the lender does not turn him down immediately, the lender will want to be compensated for the risk he is taking in lending to him. The challenge for the person with bad credit often becomes not finding a loan, but finding a loan at an affordable rate of interest.
Secured Loans
One way that a person with a bad credit history can reduce his interest rates is by securing his loans with a form of collateral. For example, some borrowers try to build their credit score by taking out secured credit cards -- credit cards that use a bank account as collateral. In some cases, lenders will accept another form of collateral on loans, such as a house or a vehicle.
Payday Loans
Some lenders do not inquire about an individual's credit score. For example, many payday lenders, who offer small, short-term loans in exchange for high interest rates, are willing to lend to anyone. However, these lenders typically charge high rates of interest to offset the risk of not being repaid. In addition, some lenders, such as payday lenders, charge exceedingly high fees to people who miss their payments on the loan.
Considerations
Although a prospective lender's credit score is the first thing that lenders look at when considering providing a person with a loan, there are other factors that the lender will consider as well. For example, a lender may be willing to lend to someone with a bad credit score who has a significant income or considerable savings. This will help offset the borrower's risk, as it makes clear that he is financially secure.
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