May people despair of starting over financially, because they don't know how to get a starter loan with bad credit. While bad credit can make it harder to get a loan, it doesn't make it impossible. In fact, some companies specialize in servicing people with bruised credit.
- Be prepared to take on high interest. Interest rates reflect the degree of risk a bank takes on offering you credit. They have to pad their income to make up for the extra cost of servicing people who sometimes need encouragement. The good news is that, once you've improved your credit score with a regularly paid starter loan, you can use that credit to get better terms on a loan you can use to pay off the original debt.
- Talk with your bank. It costs more to get a new customer than to keep an existing one. This means that your personal bank, the one where you keep your checking and basic savings, will be more motivated to take a chance on you. Sit down with a banker at your usual branch, preferably somebody you've dealt with before, and spell out your situation. Take whatever product they offer, even a tiny loan at high interest. Again, the main purpose of this loan is to start rebuilding your credit.
- Consider secured debt. Secured debt is debt where the bank has the right to take something of yours if you default on the loan. Common examples include a car loan or home loan. Because there's collateral to recoup a loss, banks are more willing to take risks on a secured loan than an unsecured loan.
- Pay off the loan regularly and conscientiously. If you continue the habits that trashed your credit in the first place, the starter loan will do you no good. If possible, set up automatic payments via the lender or your bank. That way you never have to worry about forgetting to make payments.
"Total Money Makeover", Dave Ramsey 2007
"Small Business for Dummies", Eric Tyson, 1998