How Can I Obtain a Line of Credit With Bad Credit?

Man paying with a credit card
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Obtaining a line of credit with a low credit score is difficult, but not impossible. Interest rates tend to be higher and the line of credit may be capped at a lower level than someone with a more pristine credit history. Credit cards, unsecured personal loans, credit union loans and secured loans may be options, but each has its own benefits and drawbacks.

Credit Cards

A variety of credit cards are available to consumers with bad credit. Many are secured cards. While secured credit cards help you rebuild your credit score, they require you to put down a deposit. That deposited amount becomes your credit line. If you don't pay your bill for an extended period, the issuer transfers over funds from that deposit to settle the account.

Unsecured credit cards designed for consumers with bad credit also are an option. However, the annual fees for these cards can be prohibitively high. For example, the Matrix Discover card charges a $75 annual fee for a $300 credit limit.

Unsecured Personal Loans

Most financial institutions offer unsecured personal loans to consumers, even if they have bad credit. Consumers with very poor credit scores may be able to obtain personal loans for more than $50,000. However, these personal loans typically aren't available to individuals in bankruptcy. Consumers need to prove they have a substantial, steady income and hold a minimal amount of debt. Also, the bank will charge a much higher interest rate on your loan compared to an individual with better credit.

Credit Union Loan

Some credit unions offer personal loans for consumers with bad credit. Some of these lenders, like the Money One Federal Credit Union, don't even consider your credit score when reviewing your application. Instead, they evaluate your income level and require at least three months of steady, nonseasonal employment to determine eligibility and rates. However, you still may have to pay an application fee on top of interest payments and your total line of credit may be limited. You typically must be a member of the credit union to be eligible, and the credit union may require you to enroll in credit counseling or money management courses.

Secured Loans

If you can't swallow the interest rates associated with an unsecured personal loan, a secured loan may be an option. If you own a vehicle or a home, you can put it up as collateral to obtain a lower interest rate on your loan. However, a secured loan comes with a major risk. If you default on your loan payments, the financial institution typically has the right to seize your collateral after a period of time, which means you could potentially lose whatever serves as security for the loan.