We all make financial mistakes and often need a little help getting back on track. That’s where bad credit loans come in. When rebuilding your finances, knowing the different types of personal loans for poor credit is essential to help you get back on your feet. Here are five bad credit loans you need to be aware of to help build your credit score.
1. Payday loans
These are the most common type of bad credit loans and can be dangerous. Payday loans are often given out in small amounts and can quickly add up. If you can’t repay the loan quickly, you could be in debt for a long time due to the predatory terms and interest rates most of these loans require.
2. Car title loans
These are also known as auto title loans or car title pawning. They allow you to borrow money against the value of your car so that you can buy something else or cover some other short-term need. Unfortunately, many people end up losing their cars in this process, which can lead to big problems.
3. Secured credit cards
Secured credit cards work at any merchant the same way unsecured ones do. The only catch is that you’ll need to give a cash deposit equal to your credit line first to receive a secured card. For example, if you want a $300 credit line, you’ll need to give the credit card issuer $300 in advance.
4. Unsecured loans
Unsecured loans are the riskiest type of bad credit loan and are often the first to be denied. This type of loan doesn’t require a down payment, and it’s usually given to people who don’t have a good credit history. If you can’t repay the loan, you could have serious debt trouble, especially if your loan is sent to collections.
5. Home equity loans
Home equity loans are an excellent option for people who have enough equity in their home to borrow against. This type of loan is usually repaid over time, and the interest rate is usually lower than other bad credit loans. However, make sure that you understand the terms and conditions before signing anything, as you’ll be putting your home up as collateral against the loan.
Tips to repair your credit score
- Pay your bills on time. Your payment history is the most significant factor affecting your credit score, so you must maintain an on-time payment history with lenders and utilities. Anything past 30 days will typically be reported to the credit bureaus, so don’t let any missed payments get in the way of your credit score.
- Keep your credit utilization low. Your credit utilization is the amount of debt divided by the total amount of your available credit. A low credit utilization ratio indicates that you use a smaller percentage of your available credit and are a responsible borrower. You can improve your credit utilization ratio by paying down high-balance debt, avoiding new borrowing, and using a credit counseling service to help you manage your finances better.
- Monitor your credit report. Every year, each U.S. citizen is entitled to receive a free report from the three major credit reporting agencies. This report will show your current debt levels, payment history, and other important information about your financial situation.
The bottom line
No matter which type of bad credit loan you choose, make sure you understand the terms and conditions before signing anything. And always consult with a financial advisor before taking any steps toward rebuilding your finances.