Getting a Line of Credit With a Bad Credit Score: Tips and Mistakes To Avoid

Ben Allen
Man handcuffed to a credit card he is holding

A line of credit can be a very useful financial tool, but is difficult to secure if your credit score is sub-par. Lenders rely on credit scores to determine who is trustworthy as a borrower, and who poses a risk. For those with bad or low credit scores, securing a line of credit is still possible, though it may take some extra steps, collateral, or preparation.

If you are looking to get a line of credit but have bad credit, here’s what risks you need to be aware of so you don’t ruin your financial situation even further.

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Unsecured Line of Credit for Bad Credit Borrowers

There are two type of credit: unsecured and secured. When some form of collateral is used to secure the loan — like a car title or a house —  it’s secured. The value of the collateral is generally used to set the amount of money available in a secured line of credit. Unsecured credit has no associated collateral, so lenders base credit limits primarily on a borrower’s credit score. Often, borrowers with bad credit can receive a secured line of credit, as long as they own something worth putting up as collateral.

Unsecured lines of credit are much harder for somebody with bad credit to obtain. Without collateral that could be used to pay off any debts that might go unpaid, an unsecured line of credit generally looks too risky for many lenders. If a unsecured line of credit is offered to someone with low credit scores, it typically carries much higher interest rates and fees.

Borrowers with poor credit can be a common target for predatory lenders. These lines of credit carry high interest rates, minimum usage requirements, and fees that can hold borrowers hostage for years. Predatory lenders can include payday lenders, title lenders, and many lenders offering “instant approval” or “no credit check” lending. Scrupulous lenders will not overlook poor credit or extend financing with no assurance of security; if you aren’t being scrutinized as a borrower, you should be scrutinizing your lender before agreeing to anything.

Online Line of Credit

Beware of any line of credit offers that occur solely online. It’s common for these offers to be advertised online, have online applications, and even email you a digital credit card or provide digital access to funds. While the lack of a physical location isn’t an absolute indicator of shady lending practices, it should be a red flag.

The best practice for online lines of credit is to avoid them entirely. Most are scams are looking to take advantage of borrowers with low credit scores, and can even result in getting your identity stolen. Instead of getting a line of credit online from an unknown party, it’s much safer to go with an established banking or financial institution.

Instant Approval Line of Credit

Any trustworthy lender will want to investigate who they are lending out money to. Lenders make money when borrowers repay lines of credit, so they’ll want to lend with confidence. This takes time, typically requiring at least a credit check. Because lending money comes with risks, a lender will either want proof of a good credit score or collateral to help protect their investment.

If any lenders, especially with credit cards, are offering an instant approval for anybody and everybody, it’s wise to stay away. This could be a scam, or it could put you into a financial deficit you’ll never get out of.

Safer Solutions for Bad Credit Borrowers: Emergency Funding and Lines of Credit

When it comes to a borrower with bad credit, the best and safest solution is using secured lines of credit, such as a Home Equity Line of Credit. As long as you own the collateral you are putting against the line of credit, many lenders are willing to overlook a poor credit score. Other forms of collateral some lenders accept are: cars, savings accounts, investments, additional properties, or even expensive art or jewelry.

If you lack collateral for a secured line of credit, there are other potential options to help out with your financial situations. Many organizations and government programs are available to help those struggling with their finances. Some programs can help find solutions to housing for low-income families, while others can help make ends meet when struggling with unemployment. Many such programs don’t require a loan or repayment and are simply there to help.

Before deciding to go with a line of credit with a bad credit score, be sure to investigate all possible options. That includes inquiring at multiple financial institutions for a line of credit, finding other means of paying bills, and even asking for a loan from a family member. Unsecured loans for borrowers with poor credit are usually extremely dangerous or hard to get, and secured loans require collateral you might lose if you fail to pay your debts on time. Be positive it’s the best option for you before deciding to open a line of credit when you have a sub-par credit score.

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