Can one Obtain a Line of Credit With Bad Credit?
- What is really a line of credit?
- Pros and cons of a poor credit line of credit
- Alternatives to some poor credit line of credit
What is really a credit line?
If you're approved, a line of credit enables you to borrow money as needed up to a predetermined amount. You’ll make payments and pay interest according to your outstanding balance if you take a loan in the credit line.
Some lines of credit charge annual fees or a fee each time you borrow – so be sure to read the terms and conditions carefully before you apply for one.
Lines of credit act like credit cards. You'll have a credit limit, and you will also provide minimum payments due every month and interest based on your outstanding balance. However with a bank- or credit-union-approved line of credit, you normally borrow money by writing a cheque or transferring money into your checking account online, instead of using a charge card.
Typically, banks and credit unions offer lines of credit. If you are applying with a bank, you’ll need to be an associate first before you decide to apply.
Pros and cons of a bad credit line of credit
Getting a credit line has its own pros and cons.
Pros of getting a type of credit
If you have a line of credit available, you can get cash when it's needed, up to and including certain amount. This is why it may be worth trying to get a credit line, if you are unsure when or if you'll need the cash. Instead of waiting and applying for financing later when you realize you'll need the money, for those who have a line of credit already, you may be in a position to connect to the money you need on the same day.
You can also be able to utilize a line of credit to build your credit. If you're approved for any credit line and don't borrow the whole amount available to you, you may lower your credit utilization rate, which will help improve your credit rating scores. But be aware: Trying to get a credit line may negatively impact your scores because the lender will initiate what is known as a hard inquiry. Your credit may also have a hit if you need to borrow a larger amount out of your line of credit.
A line of credit can be a cheaper option than obtaining a personal loan, especially if you don't can get on frequently. Since lines of credit charge you interest whenever you have a balance, you should not pay interest if you are paying your balance on time as well as in full.
Cons of having a type of credit
If you've bad credit, the interest rate you'll pay on the line of credit might be higher than you'd pay should you have had strong credit. And that's if you're able to look for a lender who'll approve you for any line of credit – many only grant them to individuals with good credit. If you shop around at multiple banks or lending institutions, you may be able to get a better idea of what options could be for you.
If you make just the minimum payments on a credit line, you'll extend the life span from the debt and increase the amount of interest you pay over time. Borrowing on a credit line could improve your credit utilization ratio, which could negatively affect your credit. And your credit will even take a hit if you can't make payments promptly.
Some lines of credit come with extra fees or a fee every time you use. You need to read the fine print, so you understand what you're engaging in.
Alternatives to some poor credit line of credit
A line of credit isn't always your best option when you really need to borrow money and you've got poor credit. Let's consider some other possibilities.
Payday alternative loan
Payday loans provide payday, however they are expensive and risky. But there's an alternative choice – a payday alternative loan, or PAL, from the federal bank. These small-dollar loans can offer a fast way to bridge short-term cash needs. To try to get an associate, you need to be part of a bank not less than a month. If you think you may need a payday alternative loan in the future, it's worth looking at which lending institutions offer these financing options and trying to get membership. Just remember that you need to meet certain requirements to join a bank, which could vary for the way a bank is organized.
Peer-to-peer lenders
Peer-to-peer lending is definitely an alternative to traditional borrowing options. Peer-to-peer lenders allow borrowers for connecting directly with individual lenders who fund loans in small increments.
There are platforms that connect borrowers and lenders, to be able to get a personal loan even if your credit ratings need improvement. But you will probably pay a higher interest rate than someone with good credit.
Credit card having a low APR
Another choice is simply to obtain a credit card. It might be cheaper to look around and obtain a low-interest credit card than to take out a high-interest line of credit. Remember that getting approved for any credit card with bad credit can be difficult, you will not know your APR until you're approved and also the card come with additional fees.
Personal loan
You may also be in a position to obtain a personal bank loan directly from a lender. Consider looking around for lenders which may be prepared to consider people with less-than-stellar credit for private loans.
Bottom line
Lines of credit possess a large amount of advantages, especially if you can secure favorable interest rates and low fees. They are able to help borrowers bridge short-term cash needs.
But a low credit score credit line might be more expensive for you than other lending options. Payday alternative loans, personal loans, peer-to-peer loans, and low-APR credit cards may help you remain on surface of your finances while you work on enhancing your credit.