Do you live in Surrey, BC? Are you currently struggling with bad credit and aren’t sure how to gain access to the loan options you need? Keep reading to learn more about borrowing with bad credit in Surrey.
Click here if you want to increase your credit score but not your credit card debt.
Calculating Your Credit Score
Your credit score is a three-digit number ranging from 300 to 900. Typically it’s assigned to you once a lender reports your first payment activity to Canada’s credit bureaus (Equifax and TransUnion). From that point on, your score will fluctuate according to how you use the credit product in question. For example, if you pay your monthly credit card bill on time and in full, your score will rise. However, if you paid it late, short, or missed it entirely, your score will drop.
Wondering which credit bureau your lender might check? Find out here.
If you apply for new credit down the line, other lenders may use your score to judge your strength as a borrower, otherwise known as your ‘creditworthiness’. Depending on what kind of lender you choose and what product you apply for, it may also be used to determine what interest rate they’ll offer you. The closer your score is to 900, the easier it will be to get approved for a large amount of credit at a more affordable rate and vice versa.
The 5 Factors Used to Calculate Your Credit Score
Payment History (35%) – The largest percentage of your score varies according to the way you pay off your credit products. Remember, the more complete payments you make, the higher your score will rise. The cleaner your payment history looks when a new lender checks your credit report, the better the overall results for your loan will be.
Debt Owed (30%) – The calculation of your score also relies heavily on the amount of debt you’re carrying currently. The more money you owe to a lender, the lower your score falls. This effect is particularly apparent with products that have revolving credit limits, such as credit cards and lines of credit.
Credit History Length (15%) – When it comes to the age of your credit accounts, the older the better. For instance, a credit card that you’ve been using regularly for years is far more beneficial to your score than constantly activating and cancelling new ones.
New Credit Inquiries (10%) – Every time you apply for new credit, your lender can potentially check your credit report. Whenever this happens, it’s known as a ‘hard inquiry’ and will decrease your score slightly. While no damage will occur when you or a non-credit entity (landlords, employers, etc.) checks at your report, too many new hard inquiries can cause it to drop rapidly, making you look less creditworthy in the process.
Account Types (10%) – To further improve your score, it’s also healthy to have a variety of product types listed in your report, such as credit cards, installment loans, and lines of credit. The more responsible you are at managing these products, the better it will be for both your credit score and the credit ratings associated with each of the accounts.
Having trouble understanding your credit score and credit rating? Look at this.
What Causes Bad Credit?
Although there are now several online services that will provide you with your credit score, the standard way of checking it is to file a request with either credit bureau (we recommend you look at both versions), which will cost you a small fee.
You’re also entitled to one free copy of your credit report yearly. It’s important to monitor these regularly so you can track your progress, as well as to check for errors or signs of fraud and identity theft. If you’re having trouble getting approved for new credit, it’s best to start with this step and work your way from there.
Check out these common errors that can show up on your credit report.
If your score is within the 660 – 900 range, it generally means you have good credit, which leads to better approval odds and more affordable interest rates.
However, if you have a score within the 300 – 560 range, it means you have bad credit and will have the opposite effect. Though many subprime lenders, such as private and alternative institutions will still approve you for a smaller credit amount, your interest rate will be higher due to the heightened level of risk they’re taking on a borrower with a larger chance of defaulting. Prime lenders, like banks and credit unions, may not approve you at all because of their tougher borrowing standards.
That said, defaulted payments aren’t necessarily the result of your forgetfulness or unwillingness to pay. Sometimes life is unpredictable.
Other causes of missed payments and bad credit include (but aren’t limited to):
- Car accidents, house fires, or other financial emergencies
- Reduced income/work hours or unemployment
- Having your debit/credit card or identity stolen
- Getting scammed or robbed in some other way
- An injury that prevents you from working
- Falling into the payday loan cycle
Take a look at this infographic to see how bad credit can affect your daily life.
Applying for a Bad Credit Loan
Since bad credit reduces your overall financial strength, your loan options for will be more limited. After all, most banks and credit unions will consider you too risky. Before you get discouraged, however, keep in mind that there are plenty of lending institutions that deal specifically with bad credit clients and those with less healthy finances.
There are even some lenders who don’t perform credit checks, who will instead base their approval process mainly around your income and employment status. Just remember that you may receive less money than a prime lender will offer and your interest rate will be higher, costing you more in the long run, so be sure to factor these notions into your budget before you apply.
Click here to find out what bad credit lenders look at when you apply.
Nevertheless, once your bad credit loan application is approved, a lump sum of money will be deposited directly into your bank account. Afterward, every responsible payment you make will elevate your credit score and with it, your creditworthiness.
Here are a few loan types you can get, even with bad credit:
- Secured Loans – One way of reducing the risk on the lender is by offering them collateral (loan security), such as your house or vehicle. If they have something to sell in the event that you default, they’ll feel more comfortable lending you a larger loan amount at a more reasonable rate.
- Guarantor or Co-signed Loans – If you don’t have or don’t want to risk losing any collateral, you can also get someone with better finances to cosign the loan. Be careful, your cosigner will be agreeing to take over your payments if you default, which can harm their finances if they too can’t afford them.
- Payday Loans – These loans are easily accessed with only a bank account, address, and minimum monthly income as general requirements. They usually come in small amounts of $100 – $1,500. However, they also have very high-interest rates and fees, so it’s best to only apply for one if you have a financial emergency on your hands and can afford all costs associated.
Watch Out For Predatory Loans and Scams
While we’re on the subject, it’s essential to discuss the idea of predatory loans and loan scams, which are unfortunate liabilities in the world of bad credit products.
Sadly, having bad credit and other financial problems can lead to desperation for a solution. Predatory lenders and scam artists are well aware of this and will use manipulative tactics to get you to pay ridiculous loan rates or, even worse, to steal your money, identity, and banking information.
Stay away from this supposed ‘lender’ if they:
- Charge an interest rate over the legal limit in BC ($15 per $100 borrowed)
- Don’t have a physical address or confirmable business license
- Don’t have a page in the Better Business Bureau database
- Refuse to inform you about all costs and conditions associated with the loan
- Use language that’s solicitous or threatening
- Don’t have a good reputation or realistic customer reviews
- Demand a ‘loan insurance’ payment before your loan is deposited
Improving Your Credit Before Applying
If you’ve decided that a bad credit loan is not what you want or you’d simply like better results when you do apply, remember that your credit score is a key factor. The healthier your score is, the easier it will be to get approved and the cheaper your loan will be. Therefore, one thing you should do before applying for any loan is work to improve your credit score.
Although this can be difficult if your credit is already so bad that you don’t qualify for any traditional credit products, there are a few programs and services you can still take advantage of, including but not limited to:
- Secured credit cards
- Credit counselling
- Credit rehab savings programs
- Vehicle title loan
For more advice on how to improve your credit score, click here.
Interested in What Your Loan Options Are?
If you live in Surrey and are interested in being match with a lender, regardless of your credit history or past financial issues, Loans Canada can help find you the best option to meet your needs.