The Personal Loans Handbook for Good or Bad Credit

Written By Jeff Hindenach
Last updated December 11, 2020

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October 14, 2016

Simple. Thrifty. Living.

Getting a personal loan can be a struggle, especially if you have bad credit. Even if you have good credit, finding a personal loan that fits your needs and won’t cost you an arm and a leg in interest can be difficult. So we’ve put together a handbook on how to find the best personal loan for your based on your credit. The first thing you need to do is build your credit to make sure you get the best rates on your loan.

There are several ways to build credit, and having good credit and a long credit history is critical in today’s paperless world of credit cards and increasingly popular e-commerce. You’ll need good credit for anything from buying a car to making online purchases to renting your first home.

So, how do you build credit? There are several ways to do so, some of which may surprise you. Though you may have heard otherwise, building credit isn’t as hard as you think as there are numerous ways to do it. Here’s a simple list of ways to build credit.

Snag a secured credit card

If you are unable to qualify for an unsecured credit card, applying for a secured credit card is a simple way for you to build credit. A secured credit card affords you all the benefits of a regular credit card with just a few exceptions. Having a secured card simply means you’ll be required to put money down as collateral in the event that you fail to make your monthly payment. The amount of money you’re asked to put down is generally the same as your credit limit. Another small drawback is that you may not initially have as high of a credit limit. All things considered, having a secured credit card is a solid short-term credit-building plan that will help you build some credit history and get going in the right direction.

Find a cosigner

If you have bad credit, or no credit at all, you can still get a loan or even a credit card with the help of a cosigner. However, you should be wary of the fact that the cosigner will be fully liable for any debts you don’t pay. Therefore, find a cosigner who trusts you and remain worthy of their trust by using the loan or credit card wisely as it could reflect poorly on them if you don’t. Also, once a person cosigns with you, it’s hard for them to be removed as a cosigner, so build some trust with the individual well before you ask them to consider cosigning with you.

Piggyback on someone’s account

Becoming an authorized user on someone’s credit card is a good option if you’re late to the credit card game and have no credit history. It’s typically smartest to become an authorized user on a family member’s account, like a spouse or a parent. Remember, however, that the primary cardholder will be the one paying the bills, so be sure that you work out how they will be compensated for your purchases. If you are married to the primary cardholder, this may not be an issue as it’s possible you already have a joint bank account.

Pay rent while building credit

You don’t need a credit card to build credit. If you pay rent, you should try out a rent-reporting service. Some popular ones are Rental Kharma and RentTrack. What they do is track the timeliness of your rent payments and put them on your credit report. Be aware, however, that not all credit scores take rent payments into account. But regardless, it’s a good idea to check out what your on-time rent payments can do for you as paying rent is likely something you already do.

Search for a credit-builder loan

What’s a credit-builder loan? It’s simple. It’s nothing more or less than a loan specifically designed to help you build credit. Your credit union or community bank can likely offer you one, but you typically won’t be able to take any money out of your account until you have repaid all of the loan. See it as forced savings. Your financial institution will report the timeliness of your payments to credit bureaus, and your credit score will likely grow according to your diligence.

Establish and Maintain Good Habits

Once you’ve found a way to build credit, it’s critical that you take advantage of the opportunity by keeping a few simple guidelines in mind.

  • Be certain that you always make your payments on time. It sounds simple, but a surprising number of people fail to remember that not paying on time means that their interest rates go up and their credit score plummets.
  • Be extremely self-critical when considering opening a new account. Opening too many new accounts around the same time can lower your average account age and consequently affect your credit.
  • Keep your debt low. Especially on your credit card, you should take extreme care to not get into excessive debt. It’s typically smart to not exceed 30 percent of your monthly total credit limit. And don’t worry, your credit limit can increase as your income increases and also as you show the credit card company that you are a trustworthy borrower by not racking up extensive amounts of credit.
  • Check your credit reports (at least annually) to not only see your progress, but also to check for accuracy. Many credit card companies will allow you to check your credit score for free. Additionally, remember that everyone is entitled to print a free complete credit report every 12 months. Just hop online.
  • Though it seems somewhat counterintuitive, you should keep your accounts open for as long as possible. As long as you aren’t paying your credit card company a yearly fee, it will be beneficial for you to build your credit history even if you aren’t using the card too much.

Though obviously more difficult, it is still possible to secure a loan if you have bad credit. Understand that since your credit is bad, the breadth and depth of your options will decrease a little. That being said, there are still several viable opportunities to obtain a loan.

Harness the value of your home

If you own a home, take the opportunity to put it to work for you with a home equity line of credit (HELOC). This line of credit is usually tax-deductible and low-interest and it’s similar to taking out a second mortgage. Since the collateral is the home itself, you won’t need to have excellent credit. But putting your property on the line can be dangerous if you can’t repay, so be extremely careful.

Use your peers

A peer-to-peer loan is available through an online platform that helps you take a loan directly from an individual. The online process is safe and allows for ample review from both the vendor and the borrower side.

Join a Credit Union

You’ll likely have to apply, but if you’re accepted, a credit union is a great alternative to a typical bank. Since a credit union is non-profit and owned by its users, it can offer lower fees and higher customer service. You’ll likely be able to get a lower interest loan than you would at a bank, and they might be more flexible and patient with your bad credit.

Phone a friend

If all else fails, consider borrowing from a friend or family member. You should still treat the process like a serious business transaction and be certain to clearly document and legally record any loan that is made as it may be important not only to hold you accountable and not ruin a relationship, but also for legal reasons, especially if the loan is to purchase a home.

Let’s get a little more granular. What specifically are the best personal loans for bad credit?

Credit Union Personal Loan

The safest and easiest place to check first is your local credit union. They are flexible and offer lower rates and are required by law to not have APRs higher than 18 percent. Beyond credit unions, some lenders don’t even take your credit score into account when lending, but be ever so careful because they can charge interest rates that are through the roof, sometimes up to a whopping 1,000 percent.

Loan from Lenders Lenient with Bad Credit


These guys want to not only give you a loan, but also provide tips and personalized help to pay off your debts. Requiring a minimum credit score of 580, they are more flexible than other lenders. Learn more about Avant here.


OneMain offers more than 1,000 local branches across the nation and they have no minimum credit score requirement. Keep in mind, however, that the average score of their borrowers is between 600 and 650. The loans they offer are more long-term, typically requiring a minimum three-year term.


This service will match you with an investor who funds your loans. The minimum required credit score is 600 and the APR ranges greatly depending on your score.


Obtaining a loan from LendingPoint requires a fee and a minimum credit score of 600. They currently only operate in about 14 states, but have smaller loan terms of two to three years.

Secured Loans

Certain lenders may be willing to offer you a secured loan, which means you put down something valuable, like your car, as collateral.

The better your credit, the more willing lenders are to give you a loan. Some will even loan you money at 0 percent interest if they feel you are an exceptional borrower.


This service comes with great benefits including happy hours and networking events with other members, and even career counseling if you lose your job. Learn more about SoFi here. An alternative to SoFi is Upstart, which can be a little more accepting of people with less-than-stellar financial backgrounds. You can check out our full Upstart review to learn more.


This service offers purpose-specific loans in areas like boat and RV or credit card and debt consolidation. There’s also no origination fee. Learn more about LightStream here.


These guys will let you adjust terms and due dates, but the average credit scores of their borrowers are typically slightly higher than other lenders.

Secured Loan

A secured loan is one that is protected by collateral. This collateral could be anything from your car to your home to stocks, bonds, or other personal property. Since your loan is protected by something very valuable, you can typically secure bigger loans with smaller interest rates because lenders can feel more certain that you will repay, as you have so much on the line.

Unsecured Loans

Unsecured loans are not secured by property or personal assets and are therefore more risky for lenders. Thus, interest rates on unsecured loans are typically higher than those for secured loans. With unsecured loans, your credit becomes more of a factor as it is the only tangible security lenders have that you are a safe and responsible borrower.

We have already mentioned services like SoFi, Light Stream, Earnest, Lending Point, Lending Club and One Main, but the best option for you will depend on your needs and your credit score. You may also consider checking out Wells Fargo, Peerform or The best way to find the right option for you is to simply get out there and explore.

About the Author

Jeff Hindenach

Jeff Hindenach is the co-founder of Simple. Thrifty. Living. He graduated from Bowling Green State University with a Bachelor's Degree in Journalism. He has a long history of financial journalism, with a background writing for newspapers such as the San Jose Mercury News and San Francisco Examiner, as well as writing on personal finance for The Huffington Post, New York Times, Business Insider, CNBC, Newsday and The Street. He believes in giving readers the tools they need to get out of debt.

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