loans to help rebuild credit

loans to help rebuild credit

Best Loans to Help Build Credit

by Pauline Paquin

Trying to build credit can seem like trying to build the London Bridge over night. It is not an easy task, nor is it one that happens fast. It will take plenty of time to get your credit score either boosted from damage that occurred as a result of a mishap or just started from the ground up. There are a multitude of different loans out there for you to apply for, but the key is to focus on the ones that will boost your credit the most.

Your credit score is comprised of many factors, of which 30% is the credit utilization rate. This is a measure of the amount of credit you have outstanding compared to how much you are provided. For example, if you have a $1,000 credit limit and you used $900 of it, you have a 90% utilization rate, which is not good. Generally, lenders want your utilization rate under 30%; anything over that threshold and your credit score is negatively affected. Installment loans, however, do not affect the utilization rate. This is a great way to take out credit and not negatively affect your credit score. As you make your payments on time, you will boost your score instead.

Guarantor loans allow you to take on a loan with a family member or a friend being reponsible for the loan if you are unable to repay. That person will vouch for you and your ability to repay, so make sure you will live up to their expectations.

A mortgage is another great loan that offers fixed payments and a fixed loan. This regularity of the loan helps to keep your credit intact and there is no credit utilization factor to bring your credit score down. The longer you hold the mortgage and the more often you make your payments on time, the more likely it is that the mortgage will help to boost your credit score. Just make sure that you take a mortgage that you can easily afford and keep up with on a monthly basis. In addition, do not take out a HELOC (Home Equity Line of Credit) as they are reported as a revolving line of credit, just like a credit card.

If you have a lot of outstanding revolving debt, it can be beneficial to your credit score to consolidate it into a personal loan. This helps to regulate your payments, get the balance paid down, and does not give you access to any more money. This will help to bring your credit score back up after being dragged down by excessive revolving debt. Without the ability to continually use a credit account, your credit utilization rate will go down and your credit score will go up. There are some companies that even cater to giving loans to people with bad credit.

The best way to keep your credit score up is to keep stable credit (installment loans, mortgages, and personal loans) on your credit report with on time payments. In addition, you should not use credit cards whenever possible. Pay cash or use your credit cards very sparingly, as the credit bureaus do like to see a healthy mix of revolving and installment debt on your credit report as long as it is used responsibly. Avoid using revolving debt until you have yourself established, however, in order to keep your credit score high.

Online personal loans for people with bad credit.

You need money now, and it’s as simple as that. Because things happen. Maybe a big expense popped up, maybe you need to pay off bills, or rent a moving truck to relocate for a job. And the amount you need isn’t all that much—500 dollars, or maybe a thousand.

In a perfect world, everyone would have a healthy savings account to dip into. But the reality is quite different, because recent studies show that 60 percent of Americans have less than $500 in savings. (1) To make matters worse, more than half of Americans have “bad credit”—a FICO score of 620 or below. (2)

So, if you have bad credit and need money now, you’re not alone. But where can you turn?

Bad credit shouldn’t to lead to high fees and rigid deadlines. We offer bad credit loans with longer terms, larger amounts and APRs up to 125% lower for people with bad credit.

A bad credit loan is a type of personal loan offered to borrowers with weak, bad, or no credit. There are many different loans and many different types of financial institutions that offer them—banks, credit unions, and online lenders, among others.

One characteristic of bad credit loans is that they will generally be expensive. This is because lenders charge higher interest rates to borrowers with bad credit than they do to borrowers with good credit.

So what is a good credit score and what is a bad one? Generally, a FICO score below 630 is considered bad. To see where you fall, use the table below. If you don’t know your credit score, you may be able to access it through your online bank account or credit card statement. You can also get a free credit score through sites like CreditKarma.com and Experian.com.

Loans for Bad Credit FICO Score Range

At this point, you may be thinking: Wait a minute! I have bad credit AND I’m broke. And because of that, a lender wants to charge me EXTRA interest?

Well the answer, sadly, is yes. Lenders are going to charge you extra.

When you have bad credit, it means you have a history of paying your debts late or not at all. (You can read more about credit scores and what they mean in our guide to improving your credit score eBook.) This makes it riskier for lenders to let you borrow money. From their perspective, you already have a history of not paying your debts, so why should they expect it to be any different with them? If they lend you a thousand dollars, there’s a very real risk that they’re not going to be repaid.

To compensate themselves for that risk, lenders charge higher interest rates (the cost of borrowing money) to borrowers with bad credit. This way they make more money on these risky lending arrangements, which offsets the very real possibility of many of their borrowers defaulting (failing to repay their debts).

Say 100 people borrow money and 20 of them don’t pay it back. The lender needs to make enough money on the other 80 to cover the loss on the 20 and make a profit. When they lend to people with good credit, they get paid back more often, so they don’t charge as much.

A bad credit loan may sound like a great idea when you’re desperate for cash, but look a little closer and you’ll see that most bad credit loans will make your financial life much worse in the long run.

Even People with Bad Credit Have Options

There are two basic types of bad credit loans: secured and unsecured.

An unsecured bad credit loan means that borrowers sign a contract and promise to repay their loan according to the terms and conditions of their loan. If they fail to repay their loan, the lender may pursue collection of the money owed through a collections agency or other legal mechanism. Typical unsecured bad credit loans include personal installment loans, credit cards, and student loans.

A secured bad credit loan requires that the borrower use a valuable item—like a car, a home, or a piece of jewelry—as collateral to “secure” the loan. This means that if a borrower is unable to repay the loan, the lender is legally allowed to seize the collateral and sell it to recoup their losses. Typical secured loans include mortgages, car title loans, and pawnshop loans.

Technically, a payday loan is a secured loan. You’re not offering your car or the deed to your house, but with a predatory payday loan, you are securing the loan with a check for the amount you’ve borrowed, plus interest or fees. If you’re unable to repay the extremely high-interest loan by the due date (most borrowers aren’t), the payday lender will cash your check.

Ratings of Types of Loans for Bad Credit

Are Bad Credit Loans safe or dangerous?

Bad credit loans—or no credit check loans—are risky. If your lender doesn’t check your credit, or your ability to repay your loan, that’s a sign that they aren’t offering you a responsible loan. If they don’t care about your credit, they don’t care about you.

Dealing with the Risk in Bad Credit Loans

Say you want to buy a set of used furniture for your living room. You could visit the online used furniture store website with great customer reviews—an A+ Better Business Bureau rating, and friendly and knowledgeable customer service reps you can actually talk to on the phone—or you could buy it from a sketchy looking stranger selling it out of the back of his truck. It’s the same furniture, right? What’s the difference?

Well, whether it’s furniture, cars, home appliances or personal lenders, knowing and trusting the businesses you’re working with matters.

If you need a bad credit loan, you can expect a lot of sketchy strangers to come calling for your business. They’ll promise cash right now without a credit check. And while that all might sound well and good in the moment, you can be sure there’s a catch—sky-high annual percentage rates (APRs), short terms, and a long future of debt rollover.

But don’t panic! If you need a bad credit loan, it can be done safely. Here are the steps we recommend to find socially responsible, legitimate lenders who can get you the money you need now and even help you improve your credit score.

If you have bad credit and need a loan, look for a lender who…

Offers personal installment loans, rather than payday loans

Payday and title loans are the quickest way to ruin your finances. Getting a payday loan is never worth the risk. Remember: four out of five payday loans are rolled over or renewed, (3) and the typical payday borrower spends more than half of the year in debt to their payday lender. (4) And all this for a loan that was supposed to only last two weeks! No matter how you look at it, the odds are stacked against you.

Instead, you can find a bad credit loan from lenders who offer personal installment loans. Personal installment loans come with longer terms, lower rates, and—unlike predatory payday and title loans—are designed to be repaid.

Considers your ability to repay

Your ability to afford your loan is the single most important factor that both you and your lender should consider before you decide to borrow money. While a predatory lender wants to trap you with a short-term, high-interest debt that you won’t be able to repay (leading to a toxic cycle of re-borrowing or extending the life of your loan at the cost of additional fees and interest), a socially responsible lender will verify your income, look at your bank statements, and decide to approve or deny your loan not based on your ability to repay what you borrow.

Performs a soft credit check

You can bet that a lender who doesn’t check your credit at all isn’t interested in your ability to repay your loan. If your potential lender performs no credit check whatsoever, run.

You should also avoid lenders who perform what’s called a hard credit inquiry. These credit checks signal the credit bureaus and can harm your credit score. Hard credit inquiries (or hard credit checks) are typically initiated by lenders or credit card companies—and require your authorization. When a hard credit check is run, it can remain on your credit report for up to two years.

Alternatively, you should seek a lender who will run a “soft credit inquiry” or soft credit check. You can run a soft credit check on yourself, or it could be initiated by a lender, potential employer or landlord. Soft credit checks do not negatively impact your credit score. These are a safe alternative to hard credit checks.

Offers you flexible terms and repayment plans

When looking for a bad credit loan, one of the surest signs you’re dealing with a predatory lender is a short-term repayment structure. Typical payday lenders offer terms of two weeks. Typical title lenders offer terms of 30 days. These short terms (and the astronomically high APRs) make on-time repayment very difficult.

Instead, look for a personal installment loan with longer terms. Generally, longer terms will translate into lower monthly payments, and a more affordable loan that borrowers will be able to repay.

Reports your payments to the credit bureaus

Speaking of repayment… You’re looking for a bad credit loan because you have bad credit. When you repay an installment loan with a lender who reports payments to the credit bureaus, you can actually improve your credit score over time! Check with your potential lender and ask them, do they report on-time payments to the credit bureaus. If they do, you can use that installment loan to solve your short-term problem and grow your credit over the long term.

If you have bad credit, then you are likely all too familiar with the frustrations a low credit score can bring.

You don’t have to live with bad credit forever. Even the most damaging credit mistakes can be repaired over time. The first step toward fixing your credit is to put a stop to the habits that are contributing to your low credit score. Don’t open new credit card accounts, don’t let lenders run hard credit checks on you and don’t let predatory lenders deceive you into taking out harmful, short-term loans that you won’t be able to repay.

With a safe, personal installment loan from OppLoans, you can be certain that our soft credit inquiry won’t impact your credit. We’ll focus on your ability to repay what you borrow. And we’ll work with you to set a flexible repayment plan that fits comfortably into your life. And if you ever have questions, or need help, you can call us! (We’re a lender who answers the phone and actually wants to speak with you—how different is that?)

Taking out a bad credit loan is a major decision. Make sure you’re not just selecting a loan, but also a financial partner who wants to help you succeed today and in the future.

5 Credit Lines that Help Rebuild Credit

It may seem counter-intuitive, but taking out a loan can help rebuild credit for an individual or a business. It is important to remember that taking a loan will only improve your credit score if you make regular payments and pay off the loan on time. You will not see changes overnight, but usually within 90 days of payments, you will have a higher credit score.

Credit Consolidation Loans

If you already have too much debt, taking a credit consolidation loan can be the first step to repairing your credit. A consolidation loan is a new loan that you use to pay off your existing debt. Then, you make one payment to the new lender each month instead of the multiple payments you are currently making. The goal is to find a new loan at an interest rate lower than those you are already paying. Credit consolidation companies can help you achieve these steps.

Debt Settlement Loans

Debt settlement loans are another form of loan modification. They allow you to pay off your existing loan at a fraction of the total you have remaining. A debt settlement lender can provide you with this payment; in some cases, the company may even be able to negotiate your existing loans to a lower settlement. Both consolidation and settlement will lower your credit score at first. However, if you pay off the loans, they can get you out of the debt you are currently trapped in and set the stage for positive credit in the future.

Bankruptcy loans are a type of financing available to those who still have a bankruptcy on record. There is a statute of limitation on bankruptcy in all states, and if you are within this time period you will have a hard time getting financing. Rebuilding your credit after bankruptcy, however, relies on your ability to get new loans and manage them effectively. If your salary is high enough, you should be able to secure a new loan. You will have a high interest rate, so you should seek a short loan on a small purchase. Bankruptcy car loans are a good way to start the process of rebuilding.

Unsecured Credit Lines

Unsecured loans do not rely on the use of collateral to achieve financing. Because these loans are considered higher risk to the lender, getting this type of loan will rebuild your credit faster than using a secured loan. You will have a high interest rate, which is again why it is best to seek a short loan. You may also consider using an adjustable rate in some unsecured lines in order to benefit from increases in your credit in the future. This is risky, however.

High Risk Personal Loans

High risk personal loans are a type of unsecured credit line. They are typically offered through specific high risk lenders who make money by engaging in big pay-off loans. Your income and financial stability will be a larger factor than your credit up front. Again, these loans will have high interest rates but will rebuild your credit more rapidly than safer loans if you pay them off responsibly.

How An Auto Loan Can Help You Rebuild Credit

Rebuilding credit takes time and persistence. There are many ways a person can achieve this difficult task, and one way that might surprise you is by purchasing a new vehicle.

Rebuild Your Credit With Auto Loans

When a person has a low credit score rating, it can be very tough to get a credit card or a loan through regular means. Obtaining a car loan is typically much easier. This is because car dealerships have many lenders that they work with, and enough that they can find an interest rate that will please the customer, even though it may be a little higher. Car loan lenders also know that their loans are secured by vehicles as well.

If you consider how credit scores are calculated, car loans are a great way to re-establish your credit score. History of payments make up 35% of your credit score, and diversity another 10% – meaning that having a car loan helps your credit grow in two different categories!

Another way a car loan can help you rebuild your credit is that your spending will not get out of control. This is an “indirect” way, but it helps nonetheless. The fact of the matter is that you need credit in order to build your credit rating. Car loans are not a form of “revolving” credit and therefore can help you build your credit without making purchases that are detrimental to your financial health. With an auto loan your payments are set at a certain amount each month, and you are not given access to any extra credit.

When you get an auto loan it is crucial that you make your payments on time every single month. Do not be tempted to use the grace period. A grace period gives you more time to make your payment. For example, your payment date may be the 15th, with a grace period of the 20th. This means you can actually pay the payment on the 20th without receiving a late charge. You should instead make sure you make the payment on the 15th and do not use this grace period, as in the long run it can affect your credit score.

Rebuild Your Credit With Car Title Loans

Car title loans are another way you can rebuild your credit and improve your credit score. Many people do not understand that they have a higher chance of being approved for a car title loan over a financial institution loan even if their credit score is very low.

Obtaining and paying off a car title loan can allow you to become eligible for traditional loans/personal loans. Poor credit can impact many areas of your life, such as getting a job, purchasing a home, or renting an apartment.

Many companies believe that if a person has a low credit score they cannot be trusted. For example, if you purchase a new home or rent an apartment you may not pay your payments on time each month or may not pay them at all. You will be what is considered a risk to these companies. A car title loan helps rebuild your credit because it shows creditors that you can make your payments on time. The loan provider reports a person to the Credit Bureau when they obtain a car title loan. They will again report to the Credit Bureau if this person make their payments on time.

If your payments are late each month this will be reported to the Credit Bureau, which means you should be very careful in this respect when obtaining a car title loan. For more information on missing payments on loans, click here.

In most cases, your car title loan will be approved within a few hours. This allows you to have extra money that you more than likely desperately need. This loan also shows that you can responsibly handle this money, and looks very good with the Credit Bureau.

Note also that with a car title loan you get to keep your car – your loan is simply secured against your vehicle. This works both ways of course – if you default on your loan, you risk having your car seized by the secured party.

Finally, these are a only few reasons why auto loans and car title loans can help you to reestablish your credit. If you are having problems obtaining unsecured loans, this is something you should consider. Contact us for more information.

How Installment Loans Help Build Credit

The first step in answering this question is to understand what an installment loan is. Installment loans are when someone is lent money and the debtor must pay the creditor a fixed sum of cash for a fixed number of months. One example that most people will be familiar with is an auto loan. Specifically, the lender may require you to pay for 400$ a month for 12 months to pay off the initial sum necessary to purchase the car. Other common examples include mortgage loans, personal loans, student loans and other niche loans.

Like any loan, an installment loan will be reported to a credit agency and so one way or another will influence your credit reports. Most models used to score credit do consider them specifically when calculating credit scores. However, many curiously find that after paying of their installment debt, that there credit score never improved much at all.

People with less than perfect credit often look for installment loans to help rebuild their credit. There are specific lenders that can work with less than perfect credit. Installment loans are normally used for car, motorcycles, boats, and other larger purchases. You can even get installment loans for people with bad credit for smaller amounts less than $5,000.

This is because Installment loans differ from other loans in their capacity to help agencies predict risk. Take for example, a credit card debt. When credit card debt is paid off it provides the creditor with a different level of understanding because the payback time is often left up to choice in terms of time frame and amount. In contrast, installment loans are more stable and are even secured by assets that reduce risk for the creditor anyways (this is called a collateralized loan).

The collateralization tends to speak louder than a person’s tendency to miss payments because people do not want their car or home repossessed. This stability explains why installment debt has only a modest influence on your debt initially. It’s really as simple as this: the reason why paying of the installment debt doesn’t raise your credit score is because it actually never lowered it to begin with. This is why many people maintain a credit score of 700 plus despite holding over 100,000$ in installment debt.

Anyone thinking of taking out an installment loan should instead focus their attention on how well they manage the payments, rather than the lowering of a nominal balance of debt.

What will matter when it comes to an installment loan and it’s impact on your score is that you make each payment on time. The timeliness of your payments is known as your payback history.

In the end, as your balance does decline your credit score will indeed improve. However, this improvement will be subtle and won’t happen quickly. There is simply no disputing that a lower installment loan balance is better than a high one when it comes to your score. Just remember, this process can take many years depending on the size of the loan. By simply making those payments on time you will at least ensure that your scores remain as high as they can possibly be.

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