Rebuilding your credit can be easier than you think, if you follow a few simple steps.
If you, like many other Americans, suffer from a poor or bad credit rating, rebuilding it is important if you plan to get credit in the future. Fortunately, rebuilding your credit is not particularly difficult.
Following simple measures like obtaining and reviewing your free credit report, paying your bills on time, reducing your existing debt and not opening multiple new accounts can help your credit score. Some people even turn to short term loans, also known as payday loans, in order to rebuild their credit scores.
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Can you rebuild your credit with a short term loan?
Getting a loan from a bank or a mainstream lender can be difficult if you have less-than-perfect creditworthiness. Short-term lenders tend to follow less stringent lending criteria, which is why they provide loans to individuals with poor or bad credit ratings.
When you take a short term loan you have to repay it on or a before a scheduled due date. Upon successful repayment of your loan, you can expect your lender to report your timely repayment to major credit bureaus. While short term loans give you the ability to repair your credit rating to some extent, such loans are not legal in all states.
How can I rebuild my credit with a short term loan?
You can potentially rebuild your credit history using a short term loan, provided you play your cards right. Here’s what you need to know:
- Credit education. Learn about what effect credit has on your credit rating before you anything else. Know that while not making timely repayments can have an adverse effect on your creditworthiness, the reverse holds true as well. In addition, some online short term lenders let you know how much you may qualify for without your query for credit reaching any of the credit bureaus.
- Lenders reporting payments to credit bureaus. Some short term loan providers require that their borrowers work through tiered systems, climbing up in status each time they borrow and repay loans. After they reach a higher status, they can expect their lenders to report their loan repayments to major credit bureaus. Some other short term lenders have no such requirements and report their borrowers’ timely repayments from their very first loans.
- Borrower reputation through repeat loans. When you take repeat loans and pay them back in time, your repayment pattern is reflected on your credit report. Taking repeat loans to rebuild your credit is important because repaying just one loan on time would not have the desired effect. By taking out short term loans and repaying them as per schedule, you can expect positive marks to appear on your credit report, which will have a positive bearing on your credit rating in the long run.
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Features of loans that let you rebuild your credit
If you’re looking for a short term loan to rebuild your credit, make sure you check the following features on the loans:
- Interest rates. Short-term loans tend to charge noticeably higher interest when compared to conventional loans, but state regulations tend to restrict the maximum annual percentage rate (APR) such lenders can charge. This does not mean all payday lenders in a state charge the same APR, and you can expect to find lenders that offer cheaper loans than others.
- Loan amount and term. State regulations tend to govern the maximum amount of payday loans as well as their loan terms. For example, in Alaska you can get a loan of up to $500, and loan terms vary between 10 and 31 days. In Louisiana, you can borrow no more than $350, but loan terms can extend up to 60 days.
- In-store and online. You can apply for a short term loan online or in-store. When you apply online, the lender transfers the money into your bank account after you accept the loan contract, which typically takes one to three business days. By applying at a store-front, you can get your hand on the money immediately after your application’s approval.
- Repayment flexibility. You have to provide your bank account details so the lender can request repayments on the due date directly from your bank. If you apply in-store, the lender may require you to provide a post-dated check.
A selection of loans you could use to rebuild credit
Check the websites of any providers you’re interested in to confirm they operate in your state of residence.
Benefits and drawbacks of rebuilding your credit with a short term loan
- Apply with bad credit. People who suffer from poor or bad creditworthiness normally find it difficult to get credit, but they can potentially qualify for short term loans. Short term lenders don’t pay as much emphasis on your credit report as traditional lenders; what they look for instead is your ability to repay.
- Repair credit. As long as you can keep repaying short term loans on time, they can help you repair your credit rating. Timely repayments improve your credit report.
- Get money quickly. A short term loan can give you access to money much faster than a conventional loan. Some short term lenders can give you access to funds on the day you apply, and most lenders transfer the money in your bank account by the following business day.
- Cost. One major drawback with such loans is the typically high interest they attract. If you don’t pay the loan back on time, you can expect to pay even more fees.
- Potentially damage your credit further. Short term loans are costly and if you don’t repay them on time you can get yourself into more debt. In turn, you could damage your credit further. Consider your own financial situation and ability to manage repayments before applying for any loans.
Is there anything you should consider before applying?
Getting a short term loan to rebuild your credit can be a good idea, but bear in mind that you might be left worse off than you started if you don’t follow through in the right manner.
Consider this scenario:
You take a short term loan to try and repair your credit but can’t pay it back. Your lender reports this to major credit bureaus, and your credit rating takes a further hit.
It is important that you go through the loan contract carefully, as this document gives you a clear indication of all the terms as conditions as well as all associated fees and charges.
Frequently asked questions about rebuilding your credit
Are payday loans available in my state?
