It doesn’t matter if your credit score is low because you had a financial or medical emergency or because you used to have bad spending habits. What does matter is that you are attempting to move forward while creating a brighter financial future. One of the best ways to do this is by obtaining a bad credit loan you can use to rebuild your credit.
Why You Need to Budget
Before you start applying for loans, you’ll need to take a very close look at your current household budget. While having a line of credit will allow you to make small purchase so that your repayment history can report and improve your score, none of this will prove beneficial to you if you do not have the money in your budget to support the payments you’ll need to make.
Start by taking a very close look at your monthly expenses. Make a column and list all of your expenses, including your rent, car payments, insurance, utilities, and even groceries. Include anything you spend money on – even gas for your car or lunch at McDonalds. Once you have a clear picture of your expenses, you can subtract that number from your monthly income. The amount leftover, if any, is your disposable income.
Choosing a Bad Credit Loan
Now that you know how much you have available to put towards a loan payment, you can start searching for a lender willing to give you a bad credit loan. The budgeting exercise you did before will actually help you with the application process, as most lenders are going to ask you the same questions about your income and expenses in order to determine if you really have the cash available to make a loan payment.
Start by taking a look around, both at local banks and on the internet. Compare the general terms for loans offered by different lending institutions, and pay special attention to their interest rates. While the interest rates advertised will likely not apply to you if you have bad credit, you will have an idea of the baseline each bank is starting with.
Unless you are applying for a loan for a specific purpose, like a vehicle, do not apply to too many financial institutions at the same time. Narrow down your most realistic choices and make one application at a time. Move on to the next only after the first is declined. Too many inquiries into your credit history will make your score even lower.
The budget you have set for yourself will help you to determine the amount of money you can spend once your budget is approved. Your bank should give you clear terms, including the exactly monthly payment you’ll need to make. If the number the bank gives you does not match the number you determined when you did your budget exercise, you’ll need to keep looking around so that you can find a bank with more agreeable terms. Do not take a loan you aren’t sure you can handle thinking you will be able to make it work. Most people get into trouble and end up causing more damage to their credit scores.
You can get a bad credit loan and work towards a better financial future. Just make sure you’re really ready for the extra payment responsibility.
About the Author: Patty Kleen is a full-time writer with a passion for personal finance. She enjoys helping those with poor credit histories make changes so that they can have a brighter financial future.