Loan Options for the Credit-Score Challenged

BOSTON ( TheStreet) -- More than a quarter of Americans have credit scores of less than 600 (on a scale of 350-800) and most banks these days won't even consider a score below 620 when issuing mortgage loans backed by Fannie Mae ( FNM) and Freddie Mac ( FRE), according to Fair Isaac Corp. ( FIC).

But a less-than-stellar credit score doesn't necessarily preclude someone from buying a house or car or from opening a small business. Here are some loan options for the credit-score challenged:

Car loans: Say, for example, a young couple opens a joint bank account and credit card. Then one of them secretly maxes out all the credit cards, empties the bank account, drives the family into bankruptcy and drives away forever in the family car. The other, newly single spouse is left with ruined finances and no car -- a terrible combination in areas where driving is the only way to get to work.

Or, say, someone has a lifelong history of bad financial choices.

Enter More Than Wheels. The New England-based nonprofit runs a mandatory six-week financial-education program for prospective buyers with bad credit, then negotiates with dealers and local banks to secure low pricing and low financing for those who really need cars but might not otherwise be able to afford them. The program helps clients avoid predatory lenders and predatory dealers.

"We do all the negotiating," says Debby Miller, executive director of the organization's Manchester, N.H., office. "Our clients never overpay for a car. Never."

For those in the direst of straits, the organization will provide a "bridge car" -- a rental that allows a would-be buyer to drive to work while working to qualify for eventual financing. The fee for a bridge car is $250 per month -- about what clients will end up spending on a car payment.

"We're ultimately trying to change behavior and the relationship people have with credit and money," Miller says. "The fee is part of changing that behavior ... it's almost like a laboratory to show that they can change."

The program is limited to New England, but the organization is considering requests for expansion into other areas of the U.S., Miller says.

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