Credit history affects the decision of lenders to issue a loan. In ordinary banks, customers with poor credit scores are always denied loans. In such cases, there is only one way out – to “whiten” your reputation. The fastest way to build or fix your credit history is with a loan, which is offered by a number of companies listed below.
How do loans help my credit?
Before you take out a loan to improve your credit history, you need to understand this issue. Individuals with damaged credit cards and delinquencies often get rejected by various banks and microfinance institutions due to the fact that their past “mistakes” with the repayment of debts were reflected in the general base of credit bureaus.
All lenders provide information about the borrower to major credit bureaus (Equifax, Experian, and TransUnion). Thus, it will be difficult to get new loans if you are a former loan defaulter.
Credit bureaus keep data on all debts for the last 7 years.
In such situations, it is possible to improve your credit history with a loan. There are a number of banks and microfinance institutions that offer special programs to restore a credit score for those who have poor credit or are on the “black list”.
The essence of such programs is simple: you take loans to improve your credit history and repay them strictly according to the schedule specified in the agreement. At the same time, the credit bureau receives information about the successful debt repayment – and your credit score goes up.
If your reputation has been slightly damaged, then it will be enough to take just one small payday loan and pay it off in a timely manner in order to increase your credit score to a normal value.
With a badly damaged reputation, you will need to improve your credit history with loans for several months, repaying one loan after another in turn.
What loans can I use to build credit?
Payday loans
A payday loan is one of the most popular options for making a poor credit reputation more attractive. Such loans are issued by microfinance institutions. You can typically get a payday loan for a short term – up to 31 days. Timely payment of loans will help improve your credit. Payday loans are easy to access with any credit, and the process involves no paperwork. But this method has a drawback – higher interest rates.
Important! Before you take a payday loan, be sure to evaluate your financial capabilities. This is necessary so as not to aggravate the situation on credit history and not get bogged down in debt.
That is why it is important to draw up a clear action plan, following the proposed instructions:
- Compare offers and select the best microfinance organization for your unique needs. You can also use loan referral services that select the most suitable lender for you. Examine the following information: how long the organization has been operating, whether it is possible to apply online, etc. Read the contract carefully, pay special attention to the interest rate. Do not agree to give away property in case of non-payment. Read reviews from other customers.
- Complete a loan application. To do this, you need to visit the office of a credit institution. You will need to take proof of identity with you, as well as another document that will confirm your income. There is another way to apply for a payday loan in a microfinance organization. This is an online application. It is considered within a few minutes. If the application is approved, the money will be transferred to your bank account within 24 hours, often instantly.
Be sure to clarify all the conditions for debt repayment. Full payment is typically due on the borrower’s next payday, which typically is 2-3 weeks. Borrowers either post-date a personal check to coincide with their next paycheck or allow the creditor to automatically withdraw the funds from their account.
Knowing a few tricks, you can fix your credit history while investing almost nothing. The first payday loan sometimes comes with a zero interest rate. You will not have to pay interest, the main thing is to return principal debt on time.
POS loans
To improve your credit history, you can take a POS loan (Point-of-sale loan). POS financing gives shoppers flexible, pay-over-time installment options. In a word, a POS loan lets you buy now and pay later. Typically, shoppers apply for a one-time installment loan at checkout to help break their purchases up into smaller monthly payments. It is important to repay a loan in a timely manner.
In stores, it is easy to get a POS loan. Most often, a client with a bad credit history will be given a loan for up to $5,000. But there is also a downside. You need to sign an insurance contract. It is necessary for the bank to be more loyal to the client.
CD loans
To improve your credit, you can put your money in the bank and replenish it regularly. This can be done in any currency. There are different conditions for the deposit, according to which the account holder has the right to withdraw or not withdraw the invested money, as well as other conditions. Depository banking institutions are more willing to issue loans on preferential terms.
The value of the contribution will affect the loyalty to the client. It is especially beneficial to open deposits for pensioners.
Another way to improve your credit history is through litigation. This option is suitable if the credit reputation is damaged due to the fault of the lender. The bank refuses to correct the mistakes made.
The court will approve the claim in favor of the plaintiff if:
- If the program failed to process the payment;
- The creditor has committed illegal actions;
- The employee made a mistake while transmitting the data, as well as other human factors that influenced the mistake made, which ruined the credit reputation.
Credit builder loans
Today, there are several banks and financial institutions that offer credit builder loans aimed at improving the borrower’s credit score.
In most cases, the client performs all actions remotely via the Internet, and sometimes, a visit to the lender’s office is required.
The essence of such programs and services is quite simple – a borrower with poor credit receives a credit builder loan and repays it on time. Naturally, this positively influences the borrower’s credit history.
Credit cards
This option is inexpensive and easy. You need to contact a small, little-known bank, where customers are not too picky and demanding. The lender may be interested in the opportunity to offer the client to use new services.
Important! Top up your credit card in time, limit funds should be used regularly. If possible, the limit should be increased.
Things to keep in mind when applying for a credit card:
- Grace period. If the money on the card is only for non-cash payments, you can use the grace period provided to return it. During this time, no interest will accrue on the loan. There are also credit cards where similar conditions apply to cash withdrawals;
- Interest. Interest is what credit card companies charge you for the privilege of borrowing money. It is typically expressed as an annual percentage rate or APR;
- Discounts and bonuses. Many credit card issuers offer cash-back discounts or bonus rewards at specific merchants.
Important! Pay before the grace period expires so you don’t have to pay interest on the loan.
Here are the main banks that offer secured credit cards: Bank of America; Capital One; city; Discover; USAA (Visa and Amex); U.S. bank; Wells Fargo.
A number of smaller banks and credit unions also offer secured credit cards. These include Capital Bank, First Progress and Green Dot. The main banks that do not provide secure cards are American Express, Barclaycard, Chase, PNC and Synchrony Bank.
Alternative loans
Consider an alternative loan. Social lending is an option for immigrants building credit, although it is not available to everyone. The Mission Asset Fund works with non-profit organizations in eleven states. Its purpose is to connect all clients with credit associations and then inform the credit bureaus about it, which improves the rating of these people.
Personal installment loans
A personal installment loan is a loan that requires payments for a specified period. You’ll generally repay the debt in fixed installments each month (principal and interest) until the loan is repaid.
Lenders offer two types of installment loans – secured and unsecured. Secured loans involve collateral, like an apartment, car, or boat, to get approved. This gives the lender reassurance that they’ll recoup their losses if you do not repay your loan as they can seize your asset and sell it.
Unsecured loans are considered risky for the lender as they are not secured by collateral. Instead, the lender checks your credit profile, income, and outstanding debts to find out if you can make monthly loan payments. Some lenders set a higher interest rate to account for the increased risk of nonpayment.
Making timely loan payments each month is compulsory if you want to improve your credit. Personal installment loans can help you build a perfect payment history if you make the payments in a timely manner over the loan term. But if you miss payments and your account reaches 30-days past due, your credit score could go down.
When you apply for a personal installment loan, a hard credit inquiry is generated, and your credit score could drop by several points. This drop is only temporary, though, which could make applying for a personal installment loan worthwhile.
Expert recommendations
- If possible, pay off all debts. This applies to fines, interest on credit cards, as well as loans and other obligations;
- Deposit money for overdue loans and debt obligations. You can apply for debt restructuring. Even if you are refused, an attempt by the debtor to correct the current situation will be recorded;
- If a loan has not been paid for a long time, use the services of a lawyer. They will help to cancel the penalty or at least part of it;
- According to the decision of the court, it will be possible to pay the debt in installments according to a convenient schedule;
- No need to build a credit pyramid. Taking new loans to pay off old debts is often a bad idea. Such pyramids tend to collapse;
- Do not apply for loans too often. If you make a lot of requests, the lender will not issue a loan because the client borrows money to pay off debts, and this indicates his insolvency.
Conclusion
Even if you have delinquent loans and ruined your credit history, do not despair. You can build good credit with loans. We would like to warn against contacting companies that promise to improve credit very quickly for money. It is impossible to do this legally, therefore, you will most likely be deceived by scammers. You can improve your credit history only by legal means. Removing negative information about the borrower is impossible and illegal.
In any case, before contacting a bank, a credit union or a microfinance institution, you should check your credit score. This will expand your knowledge of your capabilities and help you choose a lender that will approve you for a loan.