How can you take out a loan despite a bad credit rating? An essential prerequisite for any borrowing is the sufficiently good credit rating. Thus, the overall economic situation of the loan seeker is addressed. He must be financially capable of repaying the loan, along with the loan interest, as contractually agreed. To ensure this, the lender assesses the applicant’s creditworthiness prior to the final lending decision.
If that is not good enough, the loan application will be rejected for that reason. For the applicant, however, this need not be the end of his efforts. He can improve the insufficiently good credit rating. That is certainly also in the interest of the bank; because that, in turn, has a business interest in granting credit.
What is to be considered with the Credit bureau?
The German banks and savings banks are for the most part a business partner of the private credit agency, which is well known to the consumer as credit bureau. All entries in the credit bureau database about the individual end user are grouped into a single number, the credit bureau score. This is expressed in percentage points.
The closer the score reaches the record of one hundred percent, the better. Conversely, the lower it gets, the worse it gets. This credit bureau base score is also the yardstick for assessing creditworthiness. It takes into account personal contact details and all financial liabilities entered in the credit bureau database, but no revenue.
Why is a credit possible with a bad credit rating?
The loan seeker should be aware that the bank is very interested in lending. However, it has to balance the business profit with the lending rates on the one hand and the business risk of non-fulfillment of the loan agreement on the other hand.
The bad or bad credit rating is such a credit default risk. If the loan seeker manages to eliminate the lack of his own credit rating, the bank will have no objections to the lending. The applicant must be active in this situation. He can choose from the following credit enhancement options:
- Provision of a guarantor
- Borrowing together with a second borrower
- Reduction of loan amount due to low credit rating
Some German and all foreign online banks are not credit bureau business partners. For the credit rating of the applicant, they do not use the credit bureau score, but the result of a detailed self-assessment of the regular monthly income and expenditure.
This often results in a different credit rating than the credit bureau business partners. The credit without credit bureau is with these online banks experience limited to a middle four-digit amount. The applicant is often helped.
How can a guarantor help?
With the help of a second person, be it a guarantor or a co-borrower, the credit problem is often resolved. The lender checks the creditworthiness according to the same criteria. Figuratively speaking, he adds two average ratings to a good one, or the good to very good credit rating of the second person completely replaces the lack of bad creditworthiness of the applicant.
As a result, it is crucial for the bank to minimize or completely eliminate its credit risk. The reduction of the loan amount does not make bad creditworthiness as such; the lender merely reduces its funding risk because it is correspondingly smaller with the lower loan.
The lack of creditworthiness remains in principle; as a result, it is neither corrected nor eliminated.
5 tips for bad credit
The loan seeker should use the following options to turn the bad one into a medium, good or even very good credit rating.
1. Find guarantor
Provision of a guarantor with a creditworthiness that meets the requirements of the bank. The guarantee is, as it is called, a safe bank for the lender. The borrower concludes the planned loan agreement and, in addition, a separate guarantee agreement with the guarantor. If the borrower does not keep the credit agreement as a debtor, the guarantor must automatically assume the obligations of the debtor.
In the end, it does not matter to the lender who serves the monthly loan repayment. It is all about the fact that the loan agreement is completed without any problems and without additional manpower and administration.
2. Take credit for two
Equally safe and even less burdensome for the lender is a second borrower. The loan will be given to two joint applicants. They decide among themselves, to whom from them the loan amount is paid out. The credit rating of both borrowers must be sufficiently good in the result that there is no credit risk for the bank. Both sign the loan agreement.
They are jointly and severally liable, with the consequence that everyone must stand for the guilt of the other. If one of them does not fulfill the contract, the other is automatically liable. The lender can practically choose which of them to turn to for performance of the contract.
3. Check credit bureau
For a credit bureau loan, the credit bureau score is one, usually the crucial basis. How that comes about is not questioned by the bank. If the score is low, then the credit rating is correspondingly bad; the loan application is then rejected for lack of creditworthiness. The applicant should check in this situation whether or that “his credit bureau” is correct.
Any unauthorized entry may adversely affect the score; be it factually wrong, or that it is out of date. According to the BDSG, the Federal Data Protection Act, every citizen has the right to an annual free credit bureau information. The written application will usually be processed within the next three to four weeks.
4. Find credit without credit bureau
The bad credit rating for a credit bureau loan, ie the credit bureau credit rating, does not have to be equivalent to the credit rating for a loan without credit bureau, which is offered by all foreign, but also by a few domestic online banks. A weak credit bureau score due to multiple negative entries plays no role in the sense, because the credit bureau is not considered.
Valuation basis is a detailed self-disclosure. The loan seeker must settle for these lenders with a loan in the middle four-digit range, for example, between 3,000 to 6,000 euros. The more theoretical credit risk can be offset by the online bank by the effective interest rate, which is a few percentage points higher.
5. Check several providers
Apart from the minimum requirements for risk management, the RiskEt according to § 25a of the Banking Act KWG each credit institution has its own lending guidelines. The soft partly from each other clearly from each other. This results in the advantage for the loan seeker to be able to choose from several to many offers. A single rejection for bad credit does not mean that you have to give up the credit for that reason.
The petitioner should not be discouraged in his efforts to borrow, even with poor credit ratings. With both good and poor credit ratings, credit providers assess their credit default risk quite differently. What is a no-go in one is not a problem for the other at all.