A Good Way to Rebuild Bad Credit
Installment Loans

Life throws us curveballs all the time. At one point, bad luck, poor choices or unfortunate circumstances may have landed your credit score on the lower end of the scale. While there are several credit scoring systems, the most popular is the FICO score which is used by the big three credit reporting agencies (Equifax, Experian and TransUnion).  The FICO score ranges from 300 to 850, which is a perfect score.

What Is Bad Credit And How Does It Affect Me?

The definition of a bad credit score will depend on the lender and the type of credit you’re seeking. For example, many home mortgage lenders consider anything below 620 as sub-prime while other lenders can consider 640 or 680 sub-prime. Sub-prime is defined as borrowers with tarnished or limited credit history who present more risk to lenders.

The impacts of bad credit extend far beyond what many people think of as the traditional consequences such as the inability to be approved for a credit card or purchase a home or car. Consumers with bad credit often find it difficult to:

• attain cell phone contracts
• secure student loans
• buy affordable car insurance
• land a job

Why the connection to employment? A survey by the Society for Human Resource Management found that six out of ten private employers check the credit histories of at least some of their job applicants, and 13 percent conduct them on all candidates to help prevent theft and get a sense of dependability of a candidate, among other reasons.

Borrowing Money with Bad Credit

Borrowing even small amounts of money can present challenges since people with bad credit face limited options. Traditionally, banks have been the first choice for personal loans. However, if bad credit is an issue, the chances of approval are slim. Even without bad credit, securing loans for small dollar amounts is unlikely to happen since most banks won’t approve loans under $5,000 due to the lack of revenue generated by these small amounts.

So where does this leave consumers with borrowing needs of less than $5,000 who also have bad credit?

Installment Loans For Bad Credit

Installment loans are becoming an increasingly popular solution especially for those with bad credit. Installment loans help people with unexpected expenses or various life needs, such as:

• Car repairs
• Medical or dental bills
• Holiday gifts or travel
• Expenses from a new baby, divorce or funeral
• Work-related expenses (electronics, tools, etc.)
• Home improvements and emergency house needs
• School-related expenses (tuition, laptop, supplies, etc. )
• Debt consolidation

What Exactly is an Installment Loan?

Simply, an installment loan allows you to borrow once and then repay with regular, fixed payments (usually monthly payments that don’t increase or decrease) over a previously defined period of time. With good or bad credit, installment loans provide a fixed interest rate and a set monthly payment that is based on the loan balance, interest rate and time you have to repay the loan. This means that with each payment you make, you reduce your original loan amount while also paying interest costs. Home mortgages and auto loans are two common types of installment loans.

Installment Loans versus Payday Loans

There is a difference in installment loans and payday loans.  Unlike payday loans installment loans offer larger amounts of money and are also:

• Easier to refinance (based on a smaller principal and or for extended maturity)
• An option for long-term cash needs that need to be paid back in increments

Installment Loans Can Be Good For Bad Credit

It is also notable that installment loans can be good for bad credit. Your FICO credit score is based on various factors of financial history:

• 35% Payment History – Repossessions, bankruptcy and late payments decrease this score.
• 30% Debt Burden – Current amounts owed, number of accounts with balances, amount paid down, etc.
• 15% Length of Credit History – Average age of accounts and age on oldest account.
• 10% Recent Credit Searches – A large number of credit inquires can decrease your score.
• 10% Types of Credit – Different types of credit used, such as revolving, mortgage, installment, consumer finance, etc.). A healthy mix of different types of debt tends to lead to higher credit scores because it suggests that you are an informed and responsible borrower.