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How to Avoid Bad Credit Loans

A "bad credit loan" is the one you will be stuck with if your credit report is less than excellent.  More specifically, if your credit score is not well above 620 you will be paying a much higher interest rate on your loans than most people.  In this article, we will provide you with some common sense advice on how to avoid these high interest loans.

The interest rate you pay on any loan can be tied directly to your credit score.  And your credit score is based on your credit history, as compiled by the three major credit reporting bureaus (Experian, TransUnion, and Equifax).  The credit bureaus get their information about you from your current and past lenders. 

Remember that car loan you defaulted on a couple years ago?  Yup - that's in your credit report.  And so are those utility bills you were late paying last year. 

The best way to start avoiding bad credit loans is to improve your credit.  I know that sounds simplistic, but it's true.  You should be able to repair your bad credit yourself, for free.  Start by requesting copies of your credit reports from the three major credit bureaus.  Review the reports for any inaccurate information, and get it removed by contacting the credit bureaus.

Start paying down your debt.  Reduce the balance on your credit cards as much as possible.  Negotiate payment terms with your lenders, if necessary.  And be careful to pay all your monthly bill on-time, from now on.  Just one late-pay can ruin all your efforts.

Add good credit references to your credit report.  There are a couple ways you can have positive information submitted to the credit bureaus, even if you cannot get a regular, unsecured credit card.  One way is through the use of sub-prime merchandise cards.  Although they are not a VISA or MasterCard, they do report to the credit bureaus.  Another option for adding credit reference is to obtain a secured credit card.  They typically require a cash deposit, and then you can charge up to the amount of the deposit.  Be sure to shop around for these cards, since some have lower fees than others.

Arm yourself with the right information.  There are many sources of tips and techniques for improving your credit (and therefore avoiding bad credit loans).  But some techniques are shaky at best (and may even be illegal). There is no shortage of companies eager to sell you an instant solution for your credit problems.  Take the time to locate an information source you can trust.  For example, when choosing a credit repair manual, look for a publisher with a long track record of success, one who updates their information frequently, and offers a money-back guarantee.

Apply these common sense techniques to repairing your shaky finances, and you may never have to visit the "pay-day loan store" again.  You should know that it will take time, but if you start today to fix your credit, you should be able to get a lower interest rate on that new car loan later this year.