subject: Turning Bad Credit Around [print this page] This scenario may seem all too familiar to you: after going through your monthly expenses, you find that you are sinking very deeply into debt that includes the dreaded credit card bills. Being a smart person, you realize that this could have a direct impact to your credit score and you are finding it hard to get ahead. On top of this, you have a sinking feeling that because of your innuendos with your credit, you have fallen into the bad credit category.
The first thing you think of to get out of your credit debt, is a loan; but the serious thing that happens to good folks like yourself is that there are a lot of companies that are all too willing to give you a bad credit loan. In fact, bad credit loans seem to be a hot topic these days. In fact, if you need a bad credit loan, you're likely to find an over abundance of information.
See if this sounds familiar. You need a loan. Maybe you want to buy a car, enroll in college, or take out a home improvement loan. Or perhaps you're a first time home buyer and you're looking for a mortgage. The problem is, you've got a bad credit history, and you're afraid you won't be able to find a lender. The chances seem to dwindle away as you may have passed through your bank and within a few moments, your dream house or car seems to disappear as they give you the bad news of denial for that loan.
But then you do a little research on bad credit loans and find that, lo and behold, there ARE loans for people with bad credit available! In fact, everyone wants to give you a loan. Loans for cars, mortgage loans, student loans, personal loans; loans for just about anything you want. Not only loans, but credit cards too. Why, who would have ever thought it would be so easy to get a loan when your credit history is so dismal?
So, that's great news, right? Before you go ahead and get that loan to rebuild your credit, please read on.
Let's just stop for a moment. Ask yourself "Why is everyone so eager to extend credit to me when my credit history is so bad?"
The question can be answered in two words: HIGH RATES. Sure, you can get a bad credit loan easily enough. But you'll "pay through the nose" when it comes to the interest rate.
So "What's the 'big deal' about paying a little higher rate?" you ask. Let's look at a few figures.
Suppose you want to buy a car. After looking long and hard, you find the "perfect" car for $20,000. So you apply for a car loan and get a loan with no trouble, but because of your poor credit, you have to pay 20% interest. On a 60 month loan, your monthly payments will be $529.88.
Now if your credit were very good, you might have gotten the same 60 month loan at an interest rate as low as 10%, with monthly payments of $424.94.
The bottom line is, over the life of the loan you'll have paid an additional $6,296.40 in interest that you would NOT have paid if you had you gotten the loan at 10% interest. Your bad credit loan will have cost you $6,296 more FOR THE SAME CAR!
But if you think that's bad, take a look at a home mortgage loan.
Suppose you want to buy a $100,000 home and you're just thrilled to find a lender willing to give you a 30 year loan in spite of your bad credit. He'll charge you 12% interest, and your monthly payment will be $1,028.61.
If your credit had not been so bad, you could have gotten the loan for a rate closer to 9%. If your credit had been very good, you might have been charged only 6% interest and your monthly payment would have been $599.55.
So what's the bottom line? That bad credit loan will have cost you (over the 30 year term) a staggering $154,461.60 MORE than you would have paid had you gotten a loan at the 6% rate. Seriously, you could buy a decent home or cottage for that price.
No, this is NOT a typo. Your lender will pocket $154,461.60 in additional interest payments because you were charged a higher rate for a bad credit loan. That's over 16 times the cost of the house itself!
So why did he charge you the higher rate? Because he knows he can get it! After all, he's got you "over a barrel." He knows (and you know) that you need a loan, but because of your bad credit no one's going to give you one at a low interest rate.
Do you see now why people are so eager to lend you money in spite of your bad credit? In fact, credit reporting companies make a fortune selling lenders the names of people who have bad credit. Those lenders know they can charge them high rates, and that if they need credit, they have no choice but to pay them.
So what's the solution? You may be thinking "What choice do I have anyway? My credit is bad, I need a loan to get a house (or car, college education, or whatever) and there's just nothing I can do about it except find a lender willing to give me a loan at whatever interest rate I can get!"
But consider for a moment whether you might be looking at the situation from a completely wrong angle. Rather than resign yourself to the situation, you should be thinking about repairing your credit.
Now if you just found the house of your dreams, you may have no choice but to act now before someone else buys it. But if you can wait a couple of months, it's highly likely you can make some major improvement in your credit score and THEN look for a loan.
Maybe this isn't what you wanted to hear. After all, you're looking for a loan, NOT credit repair advice. But wouldn't it be worth it to postpone getting that house or that car if it would save you thousands, tens of thousands, or maybe even $150,000.00 or more over the long haul?
If you're thinking your bad credit history is something you're just stuck with, or that it will take years to improve, you're mistaken. It's often possible to make major improvements in your credit rating in just a few months, and in some cases in as little as 30 days!
It's not that difficult either. You basically have 2 options. You can hire a Credit Repair Agency or you can take the "do it yourself" approach.
If you decide to hire an agency, you can easily find one in your phone book or online. Just look for "credit repair." However, it won't be cheap. Agencies usually charge from $2,500 to $5,000 or more to repair your credit. But that's still a bargain compared to how much you'll be saving in the long run. Bear in mind, this option is for folks who really have the extra cash and are willing to pay for this service. But a word of caution: there are a lot of scam artists out there.
But if you think only a professional agency can fix your credit, think again! In spite of their high fees, they won't do anything for you that you can't easily do for yourself. If you can write a few letters, address, stamp, and mail them you can repair your own credit.
If you choose the "do it yourself" route which we highly recommend, you can learn how by doing some online research. Unfortunately, along with all the good information you'll find some misinformation as well.
In conclusion, we really do understand that you may want that house or car right now, but trust us when we say that there will be always houses available, and better cars out there. With a bit of time, when you start to repair your credit, the options for that car or house will be much better. You should seriously consider postponing your search for a bad credit loan. First spend a couple of months improving your credit rating. Then you can abandon the search altogether, and begin looking for a GOOD credit loan!
