“Take out a bad credit loan to improve your credit score. Do they really help you? Or it’s an outlandish claim.”
When you borrow money from a direct lender, your main concern is whether you will be able to pay back your debt or you will fail. Much as direct lenders provide you with various lending options, you are restricted to pick up only bad credit loans if your credit score is lousy.
Before you know the answer, you must note that bad credit loans are not a type of loan offered to borrowers to bridge gaps in cash flows.
With ‘bad credit loans,’ lenders always intend ‘loans for bad credit borrowers.’ Loans for bad credit take in three types of loans mainly: payday loans bad credit
These loans do not require a credit check, which is why they are also known as loans with no credit check. A lender will disburse funds as quickly as you put in a loan application. Since these loans are granted despite your poor credit history, they involve a high rate of interest.
Payday loans are more common among bad credit loans. These loans come with a very short duration, which is usually not more than two weeks. Cash loans are alike payday loans, but the amount is smaller than latter. However, they are also paid back immediately when you receive your next payday cheque.
With very short duration, managing these loans seems a bit arduous and that is why borrowers are leaning toward instalment loans. These funding sources come with longer repayment terms that maybe around 6 to 12 months. Unlike cash and payday loans, you do not have to pay off instalment at once in lump sum. You will pay regular instalments instead.
Can bad credit loans improve your credit score?
You must keep a tab on your finances to ensure timely payments. If you fail to settle your debt, you will end up with paying late payment fees. In case of instalment loans, your lender will inform the bureau about your payments. Your score will rise if you make no defaults. However, successful payments of payday and cash loans will not raise the score of your report at all. On-time one payment does not show your creditworthiness. Your lender will not consider you as a responsible borrower.
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Ways to pay off the debt timely
If debts have swept over you and you feel almost drowned in them, these tips can help you clear all of your dues.
- Create a budget
Use online tools such as Excel sheet to record your monthly income and expenses. Then, you muse over where you can cut down on your expenses.
- Avoid the use of credit cards
As long as you have not settled whole of your debt, do not use your credit card. Make sure that you buy everything in cash because this will help you scale down your overspending. Remember that credit card use will put additional burden of debt only. If you fail to pay off all bills on time, your score will go down and if you successfully clear those dues, you might fall short of money to reimburse your instalment loans.
- Pay more than minimum amount
Paying more than the minimum balance will help you get rid of your debt soon. However, do not forget to confirm that your loan agreement allows you to pay your instalment in advance because some direct lenders impose prepayment penalty.
- Change your habits
Your routine and habits may be one of the reasons for throwing you into debts. Mull over your spending habits. How you spend each day. Study your spending behaviour at regularly and cut down on those habits that are taking a toll on your finances.
Lisa Ann has developed a well-experienced professional career. From managing the staff of more than 50+ loan experts at Fastmoneyfinance to boosting the delivery of various loan offers, she has acquired many challenging roles to come out with the best results for the company. Lisa Ann is a Senior Content Author and the Chief Financial Advisor at Fastmoneyfinance. To back her massive experience in the UK’s financial industry, she has the postgraduate degree and diploma in Business and Finance.