September 9th, 2013

The Alternative Credit Spectrum

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alternative credit spectrum

**Today’s guest post is contributed by Joe.**


Having a poor credit score can sometimes feel like being trapped in quicksand– the harder you try to escape, the further high interest rates and punitive charges pull you back down. But everyone needs access to credit and if you do need funding, there are always alternatives. The terms may not be pretty or available to everyone, but below are some options that may improve your credit health, or help fund you until you can.

Bad Credit Loans

Companies will offer loans or credit cards to people with bad credit scores, but will typically make you suffer for it. Interest rates for consumers with bad credit start at double the best offers from as little as 12-15%, but can rise up to 200-300% APR for loans lasting less than a year. It’s also important to bear in mind each application for a loan can lower your credit score by up to 5 points, so always try to use online eligibility checkers or other information to determine if it’s really worth your effort. However, if you are in a position to make repayments in full every month and stay within your limits, you can slowly begin to rebuild that tarnished credit history.

Peer to Peer and Micro Loans

In the last several years, new smaller lenders like Zopa, Funding Circle and Accion have entered the market place, looking to help individuals with small peer to peer or micro loans. They offer greater flexibility by considering more factors than simply your credit score. Each peer-to-peer loan is spread out amongst a large number of individuals, therefore spreading the risk for the lenders and increasing your chances of getting a loan. Micro loans companies like Accion exist to finance and nurture small business; they will consider character and business acumen as well as credit history and offers loans from as little as $200. By reducing the risk for lenders or offering smaller loans, micro and peer to peer lenders can offer finance to a greater range of people, i.e. those shut out by traditional lenders.

Personal Asset Lenders

One way to avoid being weighed down by your credit history is to use collateral loans. The risk is considered purely against the value of the asset you use to secure the loan, so your credit history is irrelevant. New companies like Pawntique and borro lend against a huge variety of items, such as cars, antiques, gold and even wine collections. The two drawbacks of collateral loans are that you need a valuable asset in the first place and that they won’t help you improve your credit health. But if all the other options are unappealing and you need financing without getting caught in the bad credit score spiral, they are a viable option. It’s also important to note that these loans are short term solutions. Rates will be higher (working out to around 80% APR) but usually also allow the flexibility of early repayment.

Other Alternatives

Friends and family are frequent sources of loans for entrepreneurs. Over half of small businesses get financed this way, but there is always the risk that personal relationships will be affected when money becomes involved. You may also be able to apply for subsidized business grants or loans if your business is in the right sector. Check out the Small Business Administration website for more information.

Bottom Line: No matter how difficult the situation may seem, there are always alternatives and ways for improving your credit health.


Joe Towner is based in London, UK and blogs on finance and assets for He also works on developing social media, online content and multimedia channels for new brands with Intergreater.

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Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.


  1. Hi Joe,

    Thanks for these ideas! I hadn’t thought about getting a small loan to improve credit.

    Karla Twomey
    Karla’s latest blog post – Teaching Your Kids about Money: BONUS 5 Awesome resources for you and your kids:

    Karla Twomey at 2:34 pm on September 10, 2013
  2. All great ideas, but I wanted to give extra emphasis to the peer to peer lending. It seems to be getting very popular with lenders looking for a good return on their money, faster than it’s gaining traction with borrowers. So as a borrower you might end up with a better deal with more people competing to loan you money.

    Jack @ at 12:23 pm on September 11, 2013
  3. Of course you could delay the purchase until you have saved up enough to pay in cash.
    Buy on credit – you never get a cheap deal, and in many cases costs you double the original price by the time you have paid off the interest at minimum repayments

    getrichwithme at 3:55 am on September 12, 2013
  4. eCredable can help you qualify for an auto loan or home loan, based on payments you’re already making but not typically reported to the national credit bureaus. If you qualify for an auto loan from RoadLoans, they’ll report your monthly payments to the national bureaus so you start building a traditional credit history. The same goes for Churchill Mortgage for a home loan. (Full Disclosure – I’m the CEO of eCredable, a Credit Reporting Agency).

    Steve Ely at 8:04 am on September 12, 2013
  5. Hello I just have a question. I made a terrible mistake. I let my grown child usey credit card and in good faith I trusted her to pay the payments every month. She not only maxed the limit she failed to pay on time left me with over $10, 000 interest and late fees and worst of all its in collections. She no longer speaks to me and last known phone and address has changed. I actually was burned by my own grown child and I am disabled now and cant pay this debt. Please is there anyone know how I can find her or at least make her go to court instead of me. I pray every day that these people dont take away the only thing I have. My van. Please give sugestions or refer me if you or someone can help me and if you ca nt do either one I ask all of you to please pray for me and lift this problem up to Jesus our lord thank you soo much. And may god bless each of you and families

    nancy at 12:26 pm on September 24, 2013
  6. Collateral loans can help you out of a jam, but you don’t always get full value, if you don’t retrieve the valuables by paying back the loan and interest on time. Sometimes your better off going with the selling your valuables option.

    David at 3:48 pm on July 7, 2014

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