Poor credit scores are normally the sign of poor fiscal management by an individual. Lenders and banks use your credit score to determine whether or not you are dependable enough to borrow money to. They know a poor credit score means that individual hasn’t always been the most trustworthy with their credit accounts. Perhaps someone with a poor credit score has too much credit already opened or has held them self in credit debt for a long period of time. Whatever the reason is, a person with poor credit might not be determined as creditworthy enough to take out a bank loan. And if you are a person with bad credit, you might already know this.
Great Credit Means Great Treatment
It isn’t always fair as those with the biggest loans and lowest rates will be those with higher credit scores. It is because banks and loan lenders feel they are taking a much lower risk by trusting their money with someone who has been on track with their credit payment history. While running around to major banks may dig you up something, in most cases, if a couple major banks don’t accept your application for a loan, chances are others banks will probably not.
You Have to Pay Down Debt to Increase Your Credit Rating
If this is the case, opportunities still exist that may allow you to borrow and get a loan. The first step a fiscal management professional will tell you is to immediately get yourself as credit debt free as possible. This will cause an increase in your credit score, however doing this isn’t always something people are capable of doing over a short period of time. For some, credit debt is something they might not get out of by the time they pass away.
Two Loan Options for Bad Credit Rating Holders
You might have an emergency that requires you to get a loan as soon as possible. If this is what you need, there are plenty of loan lenders set up that feed directly to those with bad and poor credit. These credit lenders will generally provide you with two different options when examining the choices of loans you can take out. These loan types include a secured bad credit loan, and an unsecured loan.
A secured loan is considered a better choice, financially, for those with bad credit. When applying for a secured loan, you must give up something of equal value to the loan. You are basically giving the loan provider a piece of collateral in case you default or go bankrupt while on the loan. These types of loans feature interest rates similar to those given to people with excellent credit from larger loan lending agencies.
Why is this an excellent choice for those with poor credit? Almost any type of loan you take out is considered a form of credit. If you give $5000 as a form of collateral for a $5000 loan, or 2 – 2500 dollar loans, you’ve just opened a positive source of credit. This shows on your credit report, and as long as you keep making your payments on time, it will show, as well. This in turn will increase your credit score. That will enable you to get larger loans from more mainstream lenders with lower interest rates.
The other option open to those with bad credit from bad credit loan lenders is an unsecured loan. An unsecured loan is a better option for those with no type of money or assets available to give the lender as collateral in case of defaulting on the loan. However, the fees and interest rates are stiff. With some interest rates reaching more that 30%, if you can’t afford to pay much more than the minimum monthly amounts due, paying off the principle on the loan could take many, many years.
Simply put, unless you are in some dire financial situation, taking out an unsecured bad credit loan can be an extremely poor financial decision.
Be Careful of the Fine Print, Don’t Let Lenders Take Advantage of Your Bad Credit
Getting a bad credit loan isn’t always as difficult as it seems. There are plenty of lenders willing to lend you money, however, make sure you read the fine print when they ask for your signature. Some of the interest rates can be outstanding, making taking out a bad credit loan not the smartest of choices you could make financially.
To get yourself a proper loan, you will want to see what you can do to increase your poor credit score before anything else. Look at your current accounts of credit and ask yourself what you can do to start paying off those credit cards and loans that are making your credit score so low. Cut back on nights outside and spend more days relaxing at home, making dinner yourself instead of ordering out, and slow down your shopping habits. Put this extra cash towards your credit accounts and start paying off your debts. This will look very good to your creditors and show you are becoming more responsible with your credit. This can cause an increase in your credit score, and in turn make you more accountable to take out loans with better interest rates. However, if you don’t have the money it will take to start paying those loans back, avoid opening any more credit accounts if at all possible.