Do Installment Loans Help a Bad Credit Rating?
by:
Terry Zulit
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.
No. of Times this article has been viewed :
1254
Date Published :
Feb 3 2009
Most Recently Published Credit Management Articles as of
|
|
Mar 11 2010
Guide to Credit Cards
by
BMA Editorial Team A
When used properly Credit Cards can be very handy for times when cash flow is a problem.
|
Mar 9 2010
Instant Approval Credit Cards FAQ
by
BMA Editorial Team A
In a fast-paced society, the speed of a card approval is sought after by many individuals. But, it is important to understand as much as you can about this type of card before you choose to apply for one.
|
Mar 7 2010
Begin Living Your Dreams Without Credit Card Debt
by
BMA Editorial Team A
One of the best methods for consolidating credit card debt is through a credit counseling organization. These companies are nonprofit and are in the business of helping people become debt free.
|
Mar 7 2010
Finding the Best Solution for Credit Card Debt
by
BMA Editorial Team A
Finding the best solutions to credit card debt is not as difficult as it might seem at first. Most people do not start looking for solutions until they have been struggling for a while and this delay often makes the situation seem overwhelming.
|
Mar 6 2010
Unsecured Loans Your Solution to an Improved Credit Score
by
BMA Editorial Team A
A bad credit score used to make it impossible for individuals and families to borrow money. Today, there are several companies which not only give individuals with bad credit unsecured loans but actually cater to people who have extremely low credit scores.
|
Mar 5 2010
Why Should You Bother With the Best Secured Credit Card Deal?
by
BMA Editorial Team A
You can't stop noticing the number of advertisements for credit card offers these days. It can be enticing to sign up as they offer attractive rates and appealing incentives. So, why should you bother with a secured credit card deal?
|
Mar 5 2010
You Can Still Get a Loan Even with Bad Credit
by
BMA Editorial Team A
The key to achieving your personal financial goals when you have poor credit is in understanding that though the credit doors are not closed forever to you, you will simply be going through a different set of doors than those that have good credit.
|
Mar 5 2010
Fast Action Can Help You Get Your Credit Repair Done Through a Collection Agent
by
BMA Editorial Team A
A crucial step to credit repair is take steps to avoid this "writing off" of your debt. You should act as soon as possible after being contacted by a collection agent.
|
Mar 1 2010
Improve Your Credit with a Secured Credit Card
by
Michael Brazier
A secured credit card can come into play as an asset to building your credit rating and history.
|
Feb 28 2010
Choosing the Right Credit Card for Your Needs
by
BMA Editorial Team A
There are many great reasons to use credit cards. Making purchases, reserving hotels and rental cars, consolidating payments, etc. But how do you know which one is right for you? Read below to find out some basics on obtaining and managing a credit card.
|
Feb 25 2010
Tips for Credit Repair
by
BMA Editorial Team A
Nothing about credit repair or restoration is easy. It will take time and effort on your part and there are no guarantees that you'll produce any changes at all.
|
Feb 23 2010
Get Rid of Bad Credit
by
BMA Editorial Team A
This article explains a few things concerning how to get rid of bad credit, and if you're interested, then this is worth reading, because you can never tell what you don't know.
|
Feb 20 2010
Solicit a Cheap Mortgage or Cheap Credit Card
by
BMA Editorial Team A
If you are carrying a debt load such as a mortgage or credit card or both, you are probably paying more for your interest than towards your principal. That is just the way credit works. There is a way you can reorganize your finances...
|
Feb 20 2010
Comparing Credit Cards to Find the Right Card
by
BMA Editorial Team A
The thing of utmost importance when you are comparing credit cards is to take your time and meticulously evaluate all of its available features. Once you do that, you will be able to determine which card is right for you and which one meets all of your needs.
|
Feb 19 2010
Small Business Credit Card Perks
by
BMA Editorial Team A
It pays to examine the individual features of the various business credit cards. Try to pick the business credit card that fits the needs of your business and offers you the maximum benefit.
|
|
Search for ebooks on Management & Business