If you’re suffering from bad credit and looking for ways to dig yourself out, such as with a bad credit loan, you’re not alone. At least one-third to half of Americans’ credit ratings fall below a FICO score of 620 or lower, into the “bad” credit category. Having such a low score means significant difficulty securing any loan with reasonable repayment terms.

Knowing your credit score is important. It is the most significant factor used to determine your creditworthiness when applying for a loan of any type. If you’re pretty sure your credit is bad, but you don’t know your exact score, discovering that and looking at your credit profile will give you a starting point from which to build your credit back up.


What Is Bad Credit

A pattern of bad credit habits  is incredibly easy to fall into, especially if consumers have not been properly educated in the importance of responsible financial practices at a young age. Our credit happy, consumer driven society, focuses on a “buy all – buy now” approach, which all too often translates into consumers over extending themselves and defaulting on credit cards, car loans, and mortgages.

Typically, to get a loan with good interest rates, a FICO score of 680 or higher is necessary. Though anything 630 or higher will at least score you a rating of “fair”. The lower your score, the worse loan terms become, where lenders start taking advantage of your poor credit with astronomically high interest rates and payback terms.


Bad Credit Loans

If you’re trying to rebuild your credit through bad credit loans, it’s important to understand what they’re all about, and to distinguish decent consumer focused ones from ones that seek to take advantage or your sticky situation.

No matter how a consumer finds themselves in a situation of bad credit, whether it be from burdensome medical expenses, divorce, job loss and unemployment, or simply poor financial decisions, they have the right to be treated fairly and not be taken advantage of; much of the responsibility to ensure this occurs falls on the consumer.

A very popular option for improving your credit score is through bad credit loans. The key though, if you do choose to go that route, is to repay it quickly, and ensure all payments are timely. If you just use a bad credit loan to accrue more debt, then you’ve done the exact opposite of the intended purpose of rebuilding credit.


Secured vs. Unsecured Bad Credit Loans

There are two types of bad credit loans: secured and unsecured. Secured loans involve using possessions as collateral for repayment, such as a home, automobile (or other title), or paychecks. These loans are usually predatory in nature and set very risky terms for repayment.

Unsecured loans are harder to obtain than secured loans, but they may help more in rebuilding your credit. This type of loan is similar to a personal loan given to a consumer with a higher credit rating, but the terms for repayment are much more strict, and the interest rates are usually 100% or higher. Unsecured loans can be helpful in building credit back up, but like secured loans, they can be also very predatory in nature.


Secured Loans

One of the most popular ways to get cash fast is through a payday loan, also called payday advances, salary loans, or cash advances. This involves writing a payday lender a check to be cashed at payday time.

Payday loans are granted on the establishment of employer payroll information. Although technically an unsecured loan, they are classified as secure because the expectation is that lenders can retrieve the loan amount plus the astronomical interest they charge from the paycheck.

Title Loans use actual property as collateral to guarantee repayment. This usually involves an automobile title, but it can include any personal property which is owned outright. The risky aspect of this type of loan is found in the requirement to hand over the actual title to the lender. If the borrower defaults on the loan, the lender is guaranteed the vehicle or other piece of personal property.


Unsecured Loans

Although a bigger buffer between debt and debtor exists with unsecured bad credit loans, significant risk still exists thanks to high interest rates (100% to 300%) and strict repayment terms. You can find a bad credit loan that will offer more reasonable terms, but you may have to search a little. Here are a few worth checking out according to NerdWallet:

  •     Payoff Loans, 8 to 22% APR, 3 year loan, minimum credit score: 640
  •     Marcus by Goldman Sachs, 16% APR, 3 year loan, minimum credit score: 580
  •     Upstart, 17.5% APR, 3 year loan, minimum credit score: 620
  •     One Main Financial, 22.74%, 3 year loan, No minimum credit score
  •     Upgrade, 29.5% APR, 3 year loan, 620 minimum credit score
  •     Avant, 28.98 to 32.91% APR, 3 year loan, 580 minimum credit score
  •     LendingClub, 33.5% APR, 3 year loan, 600 minimum credit score


Credit Repair

Getting an unsecured loan doesn’t have to be an option for climbing out of a bad credit sinkhole. Though it will take time, focusing on credit repair is the best way to improve your credit score. Whether you choose a reputable credit consolidation company, or you do it on your own, there are some key steps that can be taken to improve your credit over time.

Make Timely Payments: 35% of a credit score is based on the timeliness of payments. By making your payments on time, you can immediately and positively impact your credit score.

Pay Down Debt: The total debt owed to total available credit ratio accounts for 30% of your credit score. As you pay down debt, your credit score will begin to rise.

Correct Mistakes: Often, mistakes are made on a credit report that can negatively affect your credit. You can get a free yearly copy of your credit report to review and rectify mistakes.

Wait It Out: Poor credit indicators like bankruptcies and foreclosures only stay on a credit report for so long, typically seven to ten years. It may feel like forever, but while you’re waiting you can work on making timely payments and paying down debt.

If you choose to use the services of a credit repair company, make sure they follow the guidelines set forth by the Credit Repair Organization Act, which states credit repair companies must notify you of your legal rights, give you three days to cancel, notify you of the length of time to get results, notify you of total cost, and explain any guarantees they make.