Your credit score is an indicator of your financial health. It’s one of the first factors creditors look at when determining your eligibility for a loan or credit card. The figure also helps determine your interest rate. 

Building good credit takes time. The unfortunate reality is that it doesn’t take much to cause your score to go down. A lower credit score could affect your ability to qualify for a personal loan. 

The good news is that bad credit is temporary. There are easy steps you can take to improve your score. 

If you have bad credit but need a personal loan in Texas, you have options, but the state is a largely unregulated marketplace. Some Texan options come with extensive fees that can send borrowers into a debt spiral. Fortunately, there are also plenty of options that can help improve your financial situation. 

If you’re looking for a bad credit personal loan in Texas, here’s what you need to know. 

Common Causes of Bad Credit

Bad credit happens. 

While it takes a lot of time and effort to build a strong score, it doesn’t take much for it to drop. Individual lenders set their own guidelines as to what constitutes a bad credit score. In general, however, a bad score is anything below a 630 on the most common scoring models. 

So, what causes bad credit in the first place? Several factors can contribute, including:

• Missing payments
• Late payments
• Too many hard credit inquiries (which can result from applying for multiple loans or credit cards in a set period) 
• Having accounts in collections
• Defaulting on loans
• Charge-offs
• High balances on your credit cards (high debt-to-credit ratio)
• Maxing out credit cards
• Filing for bankruptcy

Effects of Bad Credit 

Bad credit can affect many different aspects of your life. 

You may have to pay utility deposits, which those with higher credit scores don’t have to pay. In Texas, individuals with bad credit also pay higher than average auto insurance rates. 

Additionally, bad credit can keep you from qualifying for credit, including credit cards and personal loans. If you do qualify, you may be stuck paying a higher interest rate. 

One thing to remember is that having bad credit doesn’t make you a bad person. It could mean that you had an unexpected financial situation that caused you to miss a payment, or that you had to put a large emergency expense on your credit card. 

These things happen, and you can recover from them. 

How to Get a Personal Loan With Bad Credit 

Bad credit can make getting a personal loan more challenging. 

One of the most common solutions people turn to is payday lending. While these types of loans are easy to get, they can be expensive. Texas is one of the few states that does not restrict payday loans, meaning that interest rates can quickly reach the triple digits. 

Fortunately, payday loans aren’t your only option in Texas. One option to consider is a local community bank or credit union. 

Large banks typically have rather stringent lending requirements. Smaller local banks, however, establish relationships with those living in their Texas communities. As such, they have a bit more flexibility when it comes to underwriting. They can work with you and consider factors other than your credit score to help you qualify for a loan. 

You may also be able to get a personal loan through an online lender. 

Some online lenders specialize in personal loans for individuals with bad credit, and some will extend loans to borrowers with scores of 580 or higher. They weigh other factors in addition to your credit score when determining your eligibility. They look at your available cash flow, employment, education, and other variables. 

Different online lenders have varying fees and rates, and many allow you to check your eligibility with a soft credit pull (which won’t affect your credit score). With a few quotes, you can compare your options before you apply. 

A Unique Alternative for Texas Homeowners

If you own a home in Texas and are having trouble qualifying for a personal loan, there is a unique alternative to consider — a sale-leaseback. 

A sale-leaseback allows you to convert the equity in your home to cash, providing an alternative to a home equity loan and home equity line of credit. Rather than taking out a loan, you sell your home. The great news is that you don’t have to move! 

Instead, you sign a lease agreement with the company and pay a monthly rent. The funds from the sale of your home pay off your mortgage, and you receive the remainder. You can then use the funds to pay for what you need. 

Quick Tips for Building Credit

If you’re looking to take out a personal loan in Texas but don’t need it right away, there are steps you can take to rebuild your credit in the meantime:

Pay Down Debt

If you’re carrying high balances on your credit card(s), pay them down. Lowering these balances improves your score. Making more than the minimum payments each month can help. 

Make All of Your Payments on Time 

Late or missing payments have a significant impact on your credit. 

Paying your bills on time establishes a good payment history, which can help to improve your score. 

Add an Authorized User 

If you have a willing family member, ask them to add you as an authorized user on their low-balance credit card. Doing so increases your available credit, lowering your own debt-to-credit ratio and improving your score. 

Get a Secured Credit Card

With a secured card, you make an initial cash deposit, which becomes your credit limit. You can then use the card like a regular credit card. 

Again, be sure to make all of your payments on time to keep your balance low and establish a good payment history. 

Key Takeaways

Bad credit happens. When it does, it can affect your ability to get a personal loan. 

Fortunately, you have options that can help you get the funds you need. It’s also important to remember that having a low credit score is only temporary. You can take steps to improve it. 

Establish a good payment history by paying your bills on time. Pay down the balances on your existing cards and loans. Over time, you can rebuild your credit, which will help you qualify for personal loans more easily. 

If you do need a personal loan with bad credit in Texas, you have several options other than payday lenders which can help you achieve your goals. Talk to a financial advisor to figure out the best path for you.