Personal Finance Options For Bad Credit: What You Need To Know as a Borrower

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Bad credit can be devastating to your financial future. These institutions will typically assign a ‘bad’ rating if you have fallen behind on payments, defaulted on a loan or mortgage, frequently applying for credit from different lenders, or had an account suspended due to suspicious activity.

Having bad credit can hinder your ability to rent out an apartment, getting a utility service contract, leasing a car, getting education financing or even applying for jobs that require clearance from an employee screening agency, just to name a few.

You might also find it challenging to open a new cheque or savings account because many banks won’t issue these services to individuals with low FICO scores. That’s why all financial institutions have guidelines for those who have bad credit but still want to use their services. Here are some of the different personal finance options available for people who have bad credit:

What is Bad Credit?

Bad credit is a condition in which your financial status is deemed to be below par, typically because you can’t meet your financial obligations on time. This can be the result of a wide variety of factors, including having too much debt, being unemployed, or experiencing financial hardship due to unexpected expenses (such as medical bills). If you have a bad credit score, it could make it difficult for you to get loans and other forms of credit.

You might also end up paying more in interest compared to someone with a good credit score. Bad credit is often caused by financial mishaps such as an unemployment check bouncing or missed payments on your mortgage. It can also result from being financially irresponsible, such as spending beyond your means or not paying attention to your finances.

A Credit Card Solution

One of the most effective ways to repair your credit score is by paying off  your old debts. Once you pay your old credit card accounts, they are deleted from your credit history. If you have a limited budget, the best strategy is to save money to pay off your debts as soon as possible by using the minimum amount required each month.

Once you do this, financial institutions will see that you pay your debts on time, and your credit score will greatly improve. If you have bad credit and need a new credit card, don’t expect to be approved for the same cards that you were eligible for before your credit report was damaged. With bad credit, you will most likely be granted one of those cards designated for people with low credit scores.

Online Financing

If you require a loan, you may be out of luck at traditional lending institutions because lenders will likely reject your application. Secured online financing options are available for people with bad credit. The benefit of getting a loan online is that it doesn’t require a credit check.

Having a steady income with proof of employment will likely qualify you for a quick cash advance. Although these loans are typically not intended to be long-term solutions, they can provide quick financial relief if you need it. With bad credit, you may need to choose between a small amount and a high-interest rate.

Some lenders specialize in offering loans to people who have low credit scores. The downside to choosing an online financing option is that it is typically more expensive than a traditional loan. If you are unable to repay your loan, you run the risk of having the lender take legal action and repossess your property.

Secured Credit Cards

If you need a credit card to start building a positive credit history, you may want to consider applying for a secured credit card. These cards require a security deposit that is equal to your credit limit. This deposit is used to cover any potential charges that you may not pay off in full.

When you pay off your balance in full every month, this will help you restore your credit score. With bad credit, you may qualify for a secured credit card if you have a steady source of income and a current proof of address. Security deposits for these types of cards usually range from $100 to $2,000.

Once you have had your credit card for six months and have paid off your balance in full every month, you will have a clean credit report and a higher credit score. If you do not pay off your balance each month, you will be charged interest on the full amount.


With a good credit score and a steady income, you might consider helping a spouse or family member by co-signing on a credit card or loan with bad credit. Co-signing is a financial agreement where both parties are held responsible for the payments. If the person you co-signed for fails to make good on their promise to repay the loan, you will be responsible for the entire amount.

Co-signing is risky and should only be considered if you can afford the financial repercussions of not being paid back. If you have bad credit, you should avoid co-signing altogether because it will negatively impact your credit score. This strategy is a poor way to build a credit history because the person you co-signed for will have access to your credit report.

Peer-to-Peer Lending

If you have bad credit and need a small amount of money, you may want to consider borrowing from a peer-to-peer lender. If you are applying for a short-term loan, you may be given one with a high-interest rate. This is because lenders expect you to repay the loan quickly and want to make a sizable profit on the interest they charged you.

There are a few key differences between peer-to-peer lending and community lending. While community lenders want to provide access to capital for low-income people, many peer-to-peer lenders are simply looking to make a return on their investment.

Many community lenders only invest in projects that support the local economy. On the other hand, peer-to-peer lenders can choose from a variety of investment options including direct lending (loans directly funded by investors), indirect investing (loans funded by affiliate investors), and venture capital funds.

Auto Financing

Auto Financing refers to the process of getting cash without having to make any upfront payments. It is a popular way to finance your car because it allows you to spread out the cost over time. Auto financing works best when you have good credit and a steady income. You can get auto financing typically through banks or credit unions. There are several different types of auto financing available, including cash-out refinances and loans secured by a vehicle.

Cash-out refinances allow you to replace your current car with a new one using the same payoff schedule as your original loan. You simply have to pay off the new car in full at the end of the term. A loan secured by a vehicle means that you get access to an auto loan in exchange for putting up your car as collateral. The terms of this type of loan will depend on various factors, including the value of your vehicle, how long you plan on keeping it, and your credit score.

Getting finance for a vehicle can be a challenging process if you have low credit. When financing a vehicle, you may be required to make a large down payment. The down payment amount will depend on the lender and the condition of your credit. This is because the lender is taking more of a financial risk by loaning you money.


Bad credit can make it feel like there are no options available. Thankfully, some financial institutions offer personal finance options for people with a poor credit history. It’s just that most of them come with high-interest rates and often require collateral.

When you have a bad score from carelessly handling credit in the past, the responsible thing to do is to take action now. Start rebuilding your credit rating so that in the future you can once again qualify for better loan terms.