If your credit score has decreased and is affecting your ability to borrow money when you need it, a bad credit loan may help you rebuild your credit. Of course you don’t want to borrow money just to increase your credit score, but if you have a legitimate reason for borrowing money, you can certainly use the availability of those bad credit loan proceeds to increase your credit score.
Evaluate the reasons for your low credit score
Many factors go into making up your credit score, so there is not one single item that affects your score. There are some factors that have more of an impact than others, and if you can evaluate the reasons, you will be in a better position to know that you need to do in order to increase your credit score.
For most people the largest scoring factor is how they pay their obligations. If you do not make your payments on time this will affect your ability to borrow money by traditional means thus making a bad credit loan the only way you will be approved. The amount of debt you carry can also affect your credit score, but if you pay your bills on time this will have less of a damaging affect than you would experience from paying your bills late or not at all.
Factors having an affect on your credit score
Many people think as long as they pay their bills before their account goes into collections, they will maintain a high enough credit score to prevent the need for a bad credit loan. Unfortunately this is a misconception as your ability to pay your obligations on time is one of the major scoring factors on your credit history.
Other factors include the amount of debt you are carrying, the type of credit you have (credit cards, finance companies, banks, credit unions, etc.). Some types of debt affect your score more favourably than others and should be utilized more than others. Your employment stability can also have an affect on your credit score, but the credit bureau doesn’t always have this information, so it doesn’t have as much effect in most cases as other scoring factors that are directly related to how you pay your debts.
Don’t borrow money frivolously
Though you may want to increase your credit score, do not use a bad credit loan for that purpose alone. You never want to borrow money unless you need it any more than you want to use your credit cards just to keep them active unless you pay them off when your statement arrives. Both of these factors are ones that get many people into financial trouble and should be avoided at all costs.
There are many occasions that will arise and create the need to borrow money, so there is no need to do it only to increase your credit score because if you do you may find you can’t borrow money when you do have a legitimate reason for doing so. Be careful with your credit because someone who is continually falling into financial trouble eventually loses his ability to rebuild his credit and win the confidence of lenders.