Personal Finance Advice

A few years ago, having bad credit meant that you had to deal with a few credit rejections but ultimately you could usually wind up finding financing for whatever you want as long as you were willing to pay high interest rates and plenty of fees.  Some lenders were willing to work with borrowers who had credit problems and many lenders specialized in subprime lending.  After all, this particular branch of lending can be incredibly profitable since the borrowers are paying really high interest rates and fees and in many cases don’t think to ask for lower interest rates.

Fast forward to present day and the subprime lending market has taken a substantial hit.  It isn’t only the subprime mortgage lenders who have tightened their lending standards considerably - or ceased operations altogether - but credit card companies, auto lenders and other financial institutions are no longer as willing to entertain the idea of lending to people with damaged credit histories.  The risk is simply too high with an unstable economy, and with the vast numbers of borrowers defaulting on every type of credit product lenders are getting more and more apprehensive.

So what do you do if you have a low credit score in today’s economy? You have a few different options:

1.  Accept credit at horrible terms.  If you can’t find a traditional lender to loan you money you might look toward P2P lending, which is a new trend popping up on the Internet.  “P2P” stands for “Person to Person.”  You’ll join a website that allows you to put out your request for a loan and individuals will review your request and fund some or all of your loan.  If you have bad credit, however, you might wind up paying a really high interest rate.  It’s a viable option for people with bad credit who have no other choice. 

2.  Do without credit for a while.  Do you want credit because you need it or because you just think you’re supposed to have it? If you can go without credit for a while then do it.  Operating on a cash basis for a while will help you with your budgeting and may actually allow you to build up some savings while you’re at it.

3.  Work at improving the credit you have now.  Improving your credit will help your chances of someday not needing to seek out subprime lenders to begin with.  Pay your bills on time and work at paying the balances down.  Consider this a period of time for you to get your personal finances in order and in a few years you’ll have a credit rating that allows you to request credit through almost any lender.    

Will the economy recover? Of course it will…just like your credit rating can.