Short answer? Yes! Why? Because you are reestablishing your credit rating. In this brief article I want to point out the reasons why an installment loan can help you with your bad credit rating. Even if you are currently in bankruptcy, having a term based lending agreement will help "reboot" your credit history over time.
I will explain this from a very personal point of view. I declared bankruptcy over eight years ago and I had absolutely no credit. I couldn't get a credit card, overdraft, line of credit - nill, ziltch, nothing.
My wife suggested that I get myself a small limit credit card so that during my bankruptcy period of over seven years (seven years in the penalty box if you really want a sports metaphor) but I was hesitant because I feared rejection again, and after being hounded by collection agencies (some nasty ones at that) I didn't want anything to do with lending institutions.
But she kept encouraging me to look into it and she said she would cosigner for whatever kind of credit I managed to get.
First I should explain that when I was in bankruptcy I often used payday lenders and cash advance providers to get me through any possible rough patches. In other words, when I spent too much money and was being a complete idiot. These non-conventional lenders quite literally bleed you dry in high fees and high closing costs. I read somewhere during this time that if I was late on a payday loan payment that my interest and late payments fees would crank the APR (annual percentage rate) to as high as 500% - ouch!
So even if you manage to pay back a payday loan or cash advance it is not really helping your credit rating - OK, perhaps maybe a little bit with the credit reporting agency known as Teletrack, but not so much with the conventional credit reporting agencies such as Trans Union, Experian, Equifax, and Fair Isaac (AKA FICO). These are the main targets for you when you want to rebuild your credit, and these non-conventional, high interest, high fee, payday loan and cash advance companies won't help you when you do business with them.
What I ended up doing was getting a typical conventional loan of only $3000 to be paid back over a one year period. I made payments on a biweekly basis (every two weeks) and I paid on time. Of course I had to have a cosigner for this loan and to get a loan as low as $3000 I had to apply with over three different conventional lenders. After the fourth try, I got the $3000 loan with the help of the critical cosigning by my wife.
Keep in mind that I took out this installment style loan during the fifth year of my bankruptcy term, so that I was starting to build my credit rating back up and getting ready for when I would be released from the "no credit penalty box".
As it turned out, I was actually approved for a credit card after one year of making payments on the installment loan and making these payments on time. As typical, I received mail asking if I wanted a credit card which I thought was very surprising considering my bankruptcy. Just for a lark I applied for this American Express low interest credit card and I was surprised - they gave me a credit card. This credit card was only limited at $500 and my interest rate (APR) was quite high, but I didn't care because I knew it was building more credit.
When I finally came out of my bankruptcy term I had two credit cards, a line of credit, overdraft, and I had a non-conventional used car loan in the works. The critical thing here is that I made my payments on time, and at least I had some kind of credit, regardless of the fact that I had to pay sub-prime interest rates. None of this would have been possible if I did not have that initial installment loan.
About the Author:
Terry Zulit is a professional writer and blogger who writes about personal financing products and more. You can read more about
bad credit installment loans on this page.
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1068
Date Published :
Feb 3 2009