How to Get a Loan With Delinquency on Your Credit Report

Having a delinquent account or late payment on your credit report can make it challenging to qualify for a loan But it’s not necessarily impossible With the right strategy and loan options, you may still be able to get approved despite the credit score impact of delinquencies.

How Delinquencies Affect Your Credit and Loan Eligibility

When an account becomes delinquent meaning you miss one or more payments it’s reported to the credit bureaus and appears on your credit report. As a result, delinquencies can

• Lower your credit scores. A single missed payment can drop your scores by up to 110 points.

• Stay on your report for up to 7 years. The delinquency remains on your credit report for 180 days from the date of first delinquency. If the account gets sent to collections, it stays on your report for 7 years.

• Make lenders view you as a higher credit risk. Delinquencies indicate you’ve struggled to pay accounts on time in the past, so lenders may see you as more likely to default on a new loan.

All of this makes it harder to qualify for financing like auto loans, mortgages and personal loans. You’ll also likely pay higher interest rates if approved.

Loan Options to Consider with Delinquent Accounts

Don’t assume loan approval is totally impossible with delinquencies on your record. Here are some options to consider:

Bad Credit Loans

Online lenders that specialize in bad credit lending may offer personal loans to borrowers with delinquencies and other negative marks. Loan amounts tend to be small, in the range of $500 to $5,000, and interest rates are high. But they can provide financing when you have limited alternatives.

Secured Loans

Putting up an asset as collateral, like your car for a car title loan or real estate for a home equity loan, gives you access to secured financing. The lender can take the asset if you default, so secured loans pose less risk for them.

Payday Alternative Loans (PALs)

Offered by credit unions, PALs provide members an alternative to risky payday loans. Loan amounts are $200 to $1,000 with an APR capped at 28%. If you’re part of a credit union, PALs are worth exploring.

FHA Loans

Certain FHA home loans only require a minimum credit score of 580 and allow past bankruptcies and foreclosures. So FHA loans may be an option if your delinquency hasn’t tanked your scores. Down payments start at 3.5%.

VA and USDA Loans

No minimum credit score is required for VA and USDA loans, making them potential options if you have a history of delinquencies. To qualify for VA home financing, you must be an active military member, veteran or surviving spouse. USDA loans are for low- to moderate-income borrowers in rural areas.

Adding a Cosigner or Co-borrower

Asking a person with good credit to cosign or co-borrow on the loan with you can improve the chances of approval. Just know the cosigner/co-borrower will be equally responsible for repaying the debt.

Tips for Getting a Loan with Delinquent Accounts

Beyond exploring specialized lending programs, you can take other steps to help secure financing with delinquencies on your record:

• Pay down balances: Carrying high balances on all your other accounts hurts your chances. Pay down balances as much as possible before applying.

• Avoid new credit applications: Each application causes a hard inquiry on your report. Minimize inquiries by only applying for what you need.

• Explain mitigating circumstances: If issues outside your control caused the delinquency, communicating this to lenders can help.

• Bring documentation: Provide proof of income, tax returns, employment history and other documents to back up your ability to repay.

• Make a larger down payment: Putting down 20% or more on a secured loan increases your chances compared to minimal down payments.

• Apply to multiple lenders: Don’t give up after the first denial. Persistently apply until you find a lender willing to work with you.

How to Rebuild Your Credit after Delinquencies

The best way to improve your odds in the future is to actively work on credit repair to bounce back from delinquencies. Here are some tips for credit repair after missed payments:

• Continue paying all current accounts on time. On-time payments constitute 35% of your FICO® Scores.

• Pay down overall credit card balances. Owing more than 30% of your limit on cards hurts your credit utilization ratio.

• Enroll in credit monitoring through Experian to track your score progress. Sign up for free alerts whenever key changes occur.

• Dispute any errors on your credit reports causing undeserved score hits. Submit dispute letters to the bureaus.

• Become an authorized user on a spouse or family member’s long-standing credit card account to build positive payment history.

• Open a new credit card and use it responsibly to prove you can manage more credit. A secured card may be necessary at first.

With a proactive credit repair strategy, the negative impact of delinquencies will fade over time. Older delinquencies hurt your scores less than new delinquencies. Avoid further missed payments, and you can rebuild credit to boost loan approvals.

What to Avoid with Delinquent Accounts on Your Report

While loan approval remains possible, it’s important not to make your situation worse by:

• Defaulting on any other accounts – continue making at least the minimum monthly payments on everything.

• Letting delinquent accounts get sent to collections – bring the accounts current ASAP.

• Applying for risky, predatory loans with extremely high interest – these will hurt more than help.

• Taking on new high-balance debts that stretch your finances – avoid unnecessary credit applications.

• Ignoring calls and letters from creditors – communicate to explain hardship and work on resolving debts.

• Making late payments on current accounts – stay current on everything to limit further score damage.

The Bottom Line

Having delinquencies on your credit report will make getting approved for financing more challenging. But all hope is not lost. With bad credit loan programs, FHA loans, secured financing, credit repair and other strategies, you can still qualify for the financing you need.

The most important thing is to learn from any past mistakes. Going forward, diligently pay all bills on time and keep credit card and loan balances low to rebuild your scores. Healthy credit behavior can recover your loan eligibility over time.

Frequency of Entities:
credit report: 7
delinquencies: 7
credit score: 6
loan: 6
loans: 5
credit: 5
payment: 3
accounts: 3
lenders: 2
interest rates: 2
credit repair: 2
FHA loans: 2