Having “Good” vs. “Bad” Credit: What It Actually Means

Nearly every aspect of a person’s financial life is impacted by the strength of his/her credit history and rating.
A three-digit number is designed to represent any individual’s financial health and creditworthiness and helps lenders determine the risk of lending money to a borrower.

Having good or excellent credit can offer a variety of key advantages: lower credit card interest rates, higher credit limits, lower car and homeowner insurance premiums, more purchasing and negotiating power, utility hookups and mobile phone contracts without a security deposit, easier approval for rental properties, among others.

Additionally, a great credit score enables consumers to qualify for lower interest rates and fees on nearly every kind of personal loan they might need and guarantees access to more financial options and much better loan terms.

On the other hand, those who have poor credit need to deal with many negative repercussions. Some of these unfortunate consequences include higher insurance costs, fewer renting options, a required security deposit when signing up with utilities, job search obstacles, difficulties in starting your own business and other negative ramifications

In terms of borrowing money, if your score falls in the bad credit range, your options are limited and much more expensive.

What’s Behind the Demand for Guaranteed Approval Loans?

Banks, credit unions and other traditional financial institutions have strict credit score requirements. Their rigorous loan qualification standards make it impossible for individuals with a shaky credit history to be approved and their application is bound to be declined.

As a result, applicants that are blocked from using the mainstream financial system, are looking for alternative ways to get the funds they need. In some cases, their goals are unrealistic, like finding lenders that offer guaranteed approval, no credit check and other overly high expectations that can’t be met.

And yet, even though nobody in the lending industry can guarantee the approval of a loan application, some websites that specialize in private loans for people with bad credit provide a potential pathway for a more flexible and inclusive approval process.

These websites might be comprised of direct lenders, online marketplaces, lender networks, peer-to-peer (P2P) companies, quote services, payday, title, installment and personal loan providers, fintech platforms or other types of alternative financing sources.

Typical Characteristics of Bad Credit Loans

Bad credit loans have some serious disadvantages in the form of sky-high APRs, smaller loan amounts, costly finance fees, shorter repayment terms and, sometimes, collateral requirements.

However, they are extremely popular among those with poor financial histories who can’t get approved for a traditional loan.
Some of the advantages of these types of loans include:

• Easy eligibility requirements.
• Flexibility to use the loan for any purpose: large purchases, personal emergencies, debt consolidation, home improvements or any other.
• Simple online application process that takes a few minutes to complete.
• Quick lending decision (in some cases, even near-instant or within a few short minutes).
• Funds are available quickly with some lenders offering same or next business day deposits to the borrower’s bank account.
• Some websites offer the ability to get multiple offers from different lenders and choose the best option.

The Bottom Line

Be careful of websites that advertise things like “no credit checks” or “guaranteed approvals.” It may sound tempting… but it’s too good to be real.
These statements are sometimes used as meaningless marketing hype in order to attract borrowers. In other cases, these claims can function as possible tell-tale signs of predatory lenders or scams.

However, even though 100% approval loans do not exist in reality, loans with easy (or at least, easier) approval do. They may carry unfavorable terms, including high interest rates and various fees, because lenders consider the people who take them as higher risks, due to their poor financial records.

Legitimate websites that focus on financial solutions for individuals with credit issues cannot guarantee anything, but in many cases, they can maximize your chances of getting the funding you need.

This can be done either by working with direct lenders or by using alternative or third-party services. For examples, some networks and marketplaces can match your personal profile and desired loan details with the lender, who is most likely to approve your application and offer you the best rates for your unique situation.

And remember, just because some borrowing opportunities are out there doesn’t necessarily mean they’re the right choice for you. When considering taking a certain loan, always read the terms with great care before signing on the dotted line – no matter what – so you will not place yourself in a cycle of deeper debt.

Furthermore, consider adopting a long-term strategy of improving your credit score, either by yourself or by using a professional credit repair service that can help you get back on track.