When people graduate from high school or university and step out into the real world, no one welcomes them with a brochure on being an adult. Some are lucky enough to receive ample guidance from their parents about what they need to do moving forward, but most people are left to fend for themselves.
This can include responsibilities such as building credit, saving for their future, and planning out their lives until well into retirement. Some people successfully manage to navigate their way around the ins and outs of adulthood through their own means, but some aren’t as fortunate as others.
Take, for instance, if they were to start building their credit as soon as they land their first full-time job. Now to build credit, of course, they would have to apply for a credit card and actually use it for regular spending. Then, they would have to make sure that they can pay their dues at the end of each month to maintain a good score.
However, they might not know that if they’re not careful, they could slip on the slippery slope and accumulate debt. Or they could be able to repay their dues, albeit past the deadline. All these inconsistencies can lead to a low or bad credit score, affecting their chances of being approved for a future conventional loan.
If you’re among the many people who were branded with a bad score simply because life got in the way, don’t lose hope just yet. You might struggle to get approved for a conventional loan from a traditional financial institution, but they aren’t your only options. In fact, here are some alternatives that you can consider:
Unlike traditional lending institutions that are backed by the government, private lenders get their funding from individuals or investment companies that are looking to make additional profits. This means that their requirements aren’t as stringent and inflexible as that of traditional lenders.
Bad credit scores appear on your history for seven years before disappearing, which means that even if you’ve worked to maintain a good score now, there’s still a possibility that your application for a conventional loan can be rejected. And your bad credit history will continue to haunt you in the future.
However, a typical private moneylender in Singapore will gauge your eligibility to get approved for the loan based on your current income instead of your credit score or history. This means that as long as you can provide proof of your income, the private lender can devise a loan agreement that will suit your borrowing needs.
Another option you have is to reach out to credit unions, which may or may not be affiliated with your current employer. There are also community-based credit unions that you can turn to if you don’t think that a traditional financial institution will give you what you need because of your poor history.
Most credit unions are run by their participants, which means they are more likely to look beyond bad credit scores and histories when deciding the eligibility of an aspiring borrower. Instead of the usual metrics, the credit union members will make a judgment based on the borrower’s character.
Credit unions are non-profit organizations that offer more or less the same loan options as traditional lenders. But because they are financial cooperatives that only make enough money to operate continuously, they can offer more flexible borrowing terms and better rates for their clients.
Lastly, if you still prefer getting a conventional loan from a traditional lending institution despite your low credit score and history, your best bet will be to seek help from a cosigner. Basically, a cosigner will act as the backup plan if you — the primary borrower — fail to hold up your end of the bargain.
Having a cosigner is included in your options because it’s more difficult to get a lender to trust you, considering your bad credit history. But since another person can assume the responsibility of making the monthly payments if you can’t, this reduces the risks for the lender.
Your cosigner could be a family member or friend that you can trust. However, both of your creditworthiness will be evaluated for the loan application, which means you should choose a cosigner with a good credit score and spotless history to increase your chances of getting approved.
Having a low credit score isn’t as bad as you might think. Indeed, it affects your future loan eligibility and limits your financing options, but it’s not the end of the world. By exploring your other borrowing options and taking the time to work on your credit score, sooner or later, you’ll be out of the woods too.
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