Category Archives: Personal Finance

Let’s think about loans in terms of attending an entertainment event for a moment. A good-to-excellent credit score can serve as an all-access pass, granting its holders entrance backstage — or the biggest variety of loans with the most enviable terms. A bad credit score, on the other hand, feels more like standing in the back of the general admission area trying to see the stage — or, worse, standing outside the venue just hoping somebody will be nice enough to sell you their ticket so you can experience the show.

Thankfully, having a poor credit rating does not necessarily exclude you from taking out loans. Lenders look at other factors besides just your three-digit score ranging from 300 to 850. You can increase your chances of qualifying for loans with bad credit if you show strength in these other areas.

Credit Report

Your credit score communicates to lenders at a glance how likely you are to repay loans based on your financial health and payment history. But, as NerdWallet notes, many lenders will look beyond just the number — evaluating your credit report more in-depth when they’re making a decision.

Lenders will almost certainly keep an eye out for negative credit events, such as:

• Payments over 30 days late
• Accounts in collections that remain unpaid
• Bankruptcy within the last seven to 10 years
• How often you’ve applied recently for credit

The fewer negative marks you have on your credit report, the less risky you will appear to lenders. Request a copy of your credit report from the major reporting bureaus and look over it line by line before you apply for any new loans with bad credit. Are there any areas in which you can make improvements, like by paying off a late account?

This also illustrates the importance of building a strong credit history moving forward. Do whatever you can to make every payment on time. Avoid applying for new credit frequently and sporadically, as this will trigger a hard inquiry each time — something that can bring down your score and signal to lenders you’re desperate for cash.

Income vs. Expenses

Lenders will also consider how much income you’re bringing in to make sure it’s enough to repay a loan. But a high income alone does not tell lenders the whole story; they still need to compare your income to your fixed expenses to determine how much of your income is available for loan repayment.

Cameron who makes $6,000 dollars per month might appear to be a stronger candidate than Taylor who makes $3,000 per month, but it’s impossible to know until you compare their incomes against their debts and fixed expenses. It may turn out Cameron has an expensive mortgage and a huge new car payment, while Taylor pays modest rent and keeps expenses low.

Lenders will calculate your debt-to-income ratio, or your total monthly debt payments divided by your gross monthly income before taxes. Experts generally recommend trying to keep this number below 30 percent, but lower looks even better.

Employment History

Speaking of income, lenders may also look at your employment history from the past few years. Unexplained bouts of unemployment, or constantly hopping between jobs, may make you appear riskier to lenders.

Collateral

Lenders may look for assets they can hold as collateral against the loan. If you default, the lender will be able to seize this asset — so think carefully before agreeing to secure a loan with collateral.

To qualify for loans with bad credit, and to earn reasonable interest rates on them, you’ll need to demonstrate a strong enough showing in these other areas to offset your low rating.

A big part of maintaining personal fiscal responsibility is understanding one’s actual financial position. That includes understanding the relationship between one’s income and the expenses they incur on a monthly basis. 

Understanding Personal Finances 

They don’t spend much time in school teaching people how to manage their finances. If you feel a bit lost on this topic, you are not alone. With that said, you really do need to invest some time and effort into understanding how to better manage your personal finances. Part of the process should include learning how debt affects your life and how learning to create personal budgets can keep you in good financial position. 

The Importance of Preparing a Monthly Budget 

If you plan on having good control over your finances, you need to control your spending. For most people, the amount of monthly income they have to manage is a fixed amount. It’s the individual’s expenditures that can vary from one month to the next. 

The best financial tool you have at your disposal is preparing a monthly budget. Using your income as a guide, you can determine how you want or need to spend that income throughout the month. When budgeting, you need to make sure you always put away some for savings. That comes first. After that, you’ll want to make you handle your statutory financial responsibilities like rent and any installment loans for which you may be responsible. Those are your highest priorities because not making said payments can result in long-term legal and financial issues. 

As part of the budgeting process, you would take all the above items into consideration and anything that’s remaining would be discretionary income you can use on variable expenses like food and entertainment. That’s how you set up your finances to assure you don’t get over-extended. 

Enjoying a Financially Secure Life 

The last thing you want in your life is to deal with stress related to your finances. That’s one sure way to affect the quality of your life. For that reason, you want to always focus on doing what’s necessary to give yourself as much financial flexibility as possible. 

As you contemplate your current situation, there’s several things you need to understand. First, you should only take on installment debt as long as you have the ability to make timely payments on a regular basis. It is quite common to carry some form of installment debt – for example, both mortgages and auto loans are types of installment loans. Short-term installment loans are intended for times of emergency, like unexpected medical expenses or urgent unavoidable home repairs. As long as you can make the payments on time, this debt should not be alarming. 

Second, as you manage your expenses, you should do all you can to position yourself to pay off debt as early as possible. By doing so, you could be opening the door to other financial opportunities. This can also have a positive impact on your credit score, which open up opportunities should you find yourself in another financial pinch down the line.  

All of the above information is a road map to financial sovereignty. Bottom line: If you control your expenses then you control your financial future.