December 05, 2001
By: Bev Dodd
Bad credit loan: Repair your credit rating
If you are considering applying for a bad credit loan, ordering a copy of your credit report may well be the best place to start. Why? Because it's also the first thing a potential creditor for a bad credit loan will be looking at, and even if you pay your bills on time, you will want to ensure that all the information in your credit file is up-to-date and accurate. We'll discuss this more below.
Establishing a good credit profile for a bad credit loan is the key to getting that car, home or education loan. Here's how to improve your scores from where you are today. The first is the most obvious. Pay all your payments on time. The second is, don't apply for any new credit unnecessarily. Every time you sign and return a new credit card offering, or open that second account at a department store because you get a 15% discount, an inquiry will be generated and that will reduce your score. The third is, if you must maintain credit card balances, try to keep them at a level that is 35% - 40% of the maximum credit limit. In other words, if the credit limit is $1,000, try to keep your running balance below $400. Believe it or not, consolidating all your credit cards onto one can hurt you, if the balance is at the credit limit. The fourth is, if you get into a dispute with the phone company and it isn't a huge amount, pay it and move on. Having one or more collections, even if they are small amounts, can really hurt your score.
Each time a prospective creditor looks at your credit report for a bad credit loan, an inquiry notation is added to your file, and most inquiries stay on your credit report for up to two years. Inquiries you make yourself, inquiries made during screening for a pre-approved offer of credit, or an inquiry that is part of a background check for employment purposes are not reported to potential credit grantors.)
It is best to avoid over-applying for a bad credit loan and running up excessive inquiries, for the simple reason that lenders of creditors may think you're trying to get credit due to financial difficulty, or taking on more debt than you can repay.
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