Tips on Rebuilding Your Score

How to improve your credit score

See if this sounds familiar. You are thinking of buying a house (or car) but don’t have the money to do so. Your solution would be to get a loan.

The problem is, you’ve got a bad credit score but after doing a little research, you found that there are lenders that offer loans for people with bad credit.

This may sound a great news, right? But before you start getting all too excited, ask yourself first why are these lenders so eager to give you credit when your credit score is really bad.

The answer may be obvious: they charge higher interest rates. But you might think, what’s the big deal about paying a little higher interest rate?

Interest Rates for Loans for People with Bad Credit

Let’s do the math. Suppose you want to get a bad credit loan to buy a house worth $100,000. You found a lender who is willing to give you a 30-year term even if you have bad credit, but since the lender assumes most of the risks, he’ll charge you 12% interest. With this rate, your monthly payment will be $1,028.61.

If your credit score had not been so bad, you could actually have gotten the loan for a rate between 6% and 9% so your payment would have been $599.55. The bottom line is that the loan would cost you over $150,000 more than you would have to pay had you gotten a better interest rate. This is why, it is best to fix your credit score first before making a big purchase to save money.

Loans for People with Bad Credit to Fix Your Credit Score

But you can use short-term loans for people with bad credit to fix your credit score. Lenders that offer small bad credit loans also report your payments to credit reporting agencies. So make sure though that you do good on your loan payments to slowly rebuild your credit score.

There are several types of bad credit loans you can use to fix your score. Two of which are the short-term payday/ cash advance loans; and bad credit cards.

Payday Loans for People with Bad Credit

If you stumble upon small financial issues from time to time, you can take advantage of the convenience of getting payday loans, which you can apply for online through your lender’s website. These loans are payable on your next payday, hence the term. (Be warned: don’t use this loan just for the sake of fixing your score because they are expensive. Instead, use them only when you have nowhere to go to.)

Getting one when the need arises not only helps you deal with your financial problem but also helps you fix your credit score, provided that you do good on the payments.

Credit Cards for Bad Credit

On the other hand, if you need credit that you can use regularly, getting a credit card is one of your best options. The good news is that today, there are credit cards also designed for people with bad credit. While these cards may charge you higher interest rates, properly using bad credit cards can also help you speed up fixing your credit score.

The good thing about using bad credit cards is that this type of credit is a “revolving” debt and is always available for your use as long as you keep paying your debt. You may also enjoy 0% APR if you pay your debt within the card’s grace period of no more than 30 days.

If you are planning to make a big purchase such as buy a house or car, it is definitely wiser to fix your score first. It is not hard to fix your credit score. A little step at a time can make a big different in the long run.