The average credit score in Australia is 550; scores below 500 are considered poor, while anything below 400 is considered extremely poor. A bad credit score indicates that you have a habit of paying your bills and loans late or not paying them at all.
Lenders often charge higher interest rates to loan applicants with poor credit ratings, viewing them as higher risk than other applicants. Also, some will refuse applications with bad credit scores. Therefore, seeking loans for bad credit is the ideal option for people who are in urgent need of money but have bad credit scores.
Here are some tips on how to improve your chances of getting approved for a no credit check loan:
Show proof of income
Most lenders look at your credit score when evaluating your loan application, but some take other factors into account. Therefore, you may still qualify for a loan even if you have a bad credit rating, but lenders will try to determine if you can repay the loan on time.
They can do this by asking you to provide your payslip. But if you are unemployed, you must prove that you have another reliable source of income as reliable businesses or investments. This will give them confidence that you will repay the loan on time.
They’ll also want to assess your debt-to-income ratio (DTI), the portion of your monthly income that goes to paying off your debts. Most lenders require a DTI of 40% or less; the lower, the better.
1. Put safeguards in place
Placing collateral is another strategy you can use to increase your chances of getting a loan without a credit check. Using your home or other valuable asset as collateral makes you a low-risk borrower.
Lenders would be more willing to accept applicants with collateral even if their credit scores are poor. Setting up collateral can be a good idea if you need a large sum of money. Moreover, you could even negotiate a lower interest rate and a longer repayment period.
However, if you don’t make your payments, lenders may be able to recoup their losses by selling or auctioning off your assets.
2. Apply with a co-signer
Using a co-signer is another great idea to improve your chances of loan approval when you have bad credit. However, some lenders do not allow co-signing in their loan applications, so be sure to check out different lenders.
You can choose a friend or family member with a reliable income or an excellent credit score for a co-signer. By signing as a co-signer, they will accept responsibility for repaying your loan in the event of default.
3. Work with the right lender
Although lenders have different ways of evaluating loan applications, it can be difficult to get a loan if you have bad credit. Fortunately, some lenders do not check credit history and only care if the applicant can repay the loan when it is due.
If you are looking for ways to improve your chances of getting a bad loan, be sure to research loans from suitable lenders. Gday Loans, for example, connects its clients with direct lenders who offer no credit check loans.
Improve your credit score
Improving your credit score is the best way to increase your chances of getting a loan. But building a credit score can take time.
What if you have an emergency and need it after a short time?
You can follow these steps if you cannot wait for the normal process of increase your credit score and improve your chances of getting a loan:
- Exceed the minimum monthly payment of your credit balance
- Pay all your past debts
- Create different credit accounts
- Look for loans from lenders offering loans without a credit check
- Pay your current debts and bills
- Confirm if your credit file has an error
You can still receive a loan even if you have a bad credit rating, as long as you know and research all of your opportunities. Keep in mind that there are many factors a lender can use to decide whether or not to give you a loan in addition to your credit score.