People get loans all the time with bad credit and some without any credit at all. The vast majority of loans available to people with bad or no credit are highly undesirable and sometimes predatory. If you have bad credit, adding more debt to your profile is usually a negative for your credit profile, so try to pay down existing debt instead.
Identification
There is no cutoff point where lenders refuse to approve a loan because of a low credit score. Lenders are free to extend credit to whomever they please. Theoretically, you can get a loan with the lowest score in the Fair Isaac risk model (FICO) -- a 300. In general, however, most lenders consider 620 the break point between good and bad credit according to the Bargaineering website.
Considerations
Some lenders cater to the bad credit demographic. These are often called sub-prime lenders. Sub-prime lenders make up for the much higher risk of their borrowers by charging higher interest rates. Bad credit borrowers usually pay several percentage points more on any loan. This could wind up being an extra $100,000 on a large loan like a mortgage.
No Credit Loans
An even riskier credit industry exists that caters to people with no credit or the worst of the worst credit scores -- payday loans. These lenders rarely perform a credit check because they expect most of their customers to have terrible credit. Instead of a credit check, payday lenders require a postdated check or bank account information. Payday loans are usually only for a short time, so annual percentage rates can get over 300 percent. A few federal government programs offer bad credit loans at reasonable rates. The Federal Housing Administration, for instance, backs loans that a normal lender would not approve. In 2011, borrowers only need a score of 500 to qualify for an FHA loan.
Tip
The high cost of bad credit makes it worthwhile to clean up your credit before applying for a loan. If you pay down credit card debt, starting with the balance that has the highest APR, you will have more monthly income available to pay debt faster or for other expenses. Once you eliminate most of your dates and pay every bill on time for several months, your score should see an immediate boost. You might even be able to qualify for a loan with the best rates in a year or two.
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