Low credit score? You still have options

When you’re ready to buy a house, car or secure a personal loan, a low credit score can be a hindrance. Yet it doesn’t have to spell the end of your dreams. It just means you might need to think your way around some obstacles and make some changes as you move forward.

We have some suggestions for what you can do in spite of that low FICO number. 

How low is considered low?

First things first, though. What actually is a FICO score and what number constitutes poor credit? 

FICO stands for Fair Isaac Corporation. They’re the company that developed the standard scoring model that gives lenders a baseline for figuring who gets a loan from them. Aside from FICO, there are other models of scoring. VantageScore, for example, was developed by the three major credit bureaus—Experian, TransUnion and Equifax—but both have pretty similar numbers. 

A “poor” FICO score is between 300 and 579. A poor VantageScore is between 300 and 499.

My credit score is low. What now?

Once you’ve faced the music and learned that your score is indeed in the low range, what then?

Increase your cash flow

Jim Droske, president of Illinois Credit Services, a credit counseling company, told NBC’s Select where he would start. ““First, you must be earning some amount of income so you can stay afloat,” Droske says. “You cannot get anywhere without some sort of income.” 

Tapping into multiple streams of income enables you to pay your bills consistently and on time, which is the first step toward getting back on track.

Make more money. Got it. 

Easier said than done, we know, but if you get creative, there are ways. You can look into taking on a second job, but who wants to work all the time? Start small by selling what you don’t use, marketing your skills on websites like freelancer.com or fiverr.com, or even looking into local options like dog-walking and house-sitting. 

By increasing your income, you encourage lenders to give you another look. If you have a poor credit score with a good income, you have a better chance at getting a loan (although most lines require minimum credit scores).

For example, under the federal Ability-to-Repay (ATR) standard, which was implemented in 2014, lenders must verify that borrowers have the financial ‘strength’ to pay back what they borrow. A solid income helps demonstrate that ability.

Leverage your relationships

It’s all about who you know. OK, maybe not all about them, but it can be helpful, even in mitigating the effects of bad credit. According to Susan Ladika of Bankrate.com, “If you have a relationship with a community bank or credit union, it can be to your advantage. If the bank knows you and your spending habits, your low credit score can be mitigated by your history of paying on time and keeping a balance in your accounts.”

Especially if you and/or your family have been loyal patrons of an institution for a long time, making an appointment to discuss your options is a great first step. As a faithful customer, it’s likely your bank will do whatever they can (within reason) to find a solution that benefits both of you.

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