Don’t Let Bad Credit Stop You From Getting a Home Improvement Loan
A storm rolls in, thunder booms and lightning flashes, and now your house needs repairs from the storm! Having a poor personal credit score (between 300 to 629 based on the FICO scale) presents hurdles to getting any type of loan or credit, such as a home improvement loan. But don’t despair; as long as you carefully consider all the options, you will find the best solution for you.
Secured and Unsecured Personal Loans
Personal loans are what they sound like; loans for a personal need including home improvement. There are two types of personal loans; secured and unsecured. Secured loans include adding collateral such as a car, while an unsecured loan does not involve collateral. Forbes reports that personal loans rose 11 percent from 2018 to 2019. Online lenders are also on the rise; you can get an unsecured personal loan with a few clicks or swipes on websites or apps. Lenders may be able to approve you within a day without home inspections.
Interest rates for unsecured personal loans will be high for those with bad credit. If you don’t qualify at, you may qualify for a secured personal loan with collateral. Furthermore, a benefit of a secured personal loan means a lower interest rate, so you will save money in the long run. Remember the lender will seize your collateral if you don’t repay the loan in adherence to its terms.
Credit Union Loans
Credit Unions are nonprofit financial institutions and usually have lower rates and fees for borrowers with bad credit. It’s important to note, however, that you must become a member of that credit union. Qualifications to join depend on the credit union itself, such as Navy Federal which requires members to be a member, or related to a member, of the armed forces. On the other hand, Alliant Credit Union only requires individuals to live in the surrounding area, belong to specific organizations, or have family who are Alliant members.
Greg McBride, chief financial analyst of consumer financial services company Bankrate, says joining a credit union has gotten much easier.
Government Insured Loans
The Federal Housing Administration issues home improvement loans that resemble traditional mortgages but with more tolerant qualification requirements. You usually need a credit score of at least 500 to qualify. With a FHA 203(k) renovation loan, borrowers cannot have any foreclosures in the past three years. You refinance an existing mortgage and add the home improvement costs into the new mortgage.
A FHA Title I loan involves non-luxury home improvements. They must only focus on repairs that improve basic functions of the property.
Repairing Your Credit Score
If home improvement repairs can wait, it’s worth taking time to increase your credit score to at least good or above (690 to 850). This means lower rates and more loan options.
“There are parts of the credit score algorithm that are hard to effect,” says NYU Economics assistant professor Tatiana Homonoff. “Paying bills on time and being aware of credit utilization are things people can do with ease.”