Don't Get Caught in a Bad Credit Cycle

When your credit report or score is in rough shape, the line of credit you'll be extended (if indeed you qualify for any at all) is called a bad credit loan. In general, if your credit score is not above the 600 range, you'll be stuck with these higher interest loans, which may enforce other fees and regulations on you as well, such as having to make a security deposit that covers the entire loan amount. We'll show you how you can avoid these high interest rate loans.

The interest rates you pay on just about any loan are directly tied to your credit report, and more accurately, to your credit score which is derived from those reports. These scores are based on reports made by the three major credit report bureaus, Experian, EquiFax, and TransUnion. All lenders report to one or all of the above companies, on every loan that passes through their offices, whether they turned out positive or negative. These can include everything from credit card bills, to mortgages, to car loans, student loans, late payment on utility bills, or just about any late or default payments on any bill (which is in one way or another a line of credit for a service or product).

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The first way to get out of the bad loan cycle is to improve that credit score. You may think this is easier said than done, but this isn't necessarily the case. Firstly you'll need to get your credit reports from each of the three bureaus. You get one free copy of your report yearly, so you won't incur any fees if this is your first time doing so. Review over the information and contest anything that's amiss or out of date.

Next task is to start paying down your debt and cutting the number of accounts you have. Both of these factors heavily influence your credit score. Having multiple credit cards, even if they're not being used, is not good for your score, as it makes you a greater risk for potential debt in the future.

Closing many of those old and unused cards is especially important if you wish to follow the next step, which is to open a new line of credit through sub-prime merchandise cards, which also report to bureaus. If you're desperate to rebuild your credit and don't have any current options available, you may be forced to temporarily take on a high interest secured card, which will require at least a partial security deposit towards the full amount of the loan. This should be a last resort though, as the whole point of this process is to get away from these bad loans. If you have to go this route be sure to look around, as rates can vary widely. Also, since you'll have the option of who to go with, try to choose a major bank or corporation to get your secured card through, as these higher profile outlets weigh more heavily on your score than less well known companies.

Applying some of these tips to your current situation should help you improving your credit score, and begin the long process of repairing your debt through the help of lower interest rate loans.

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