Taking out a loan to rebuild credit

Has your credit score fallen to the point of getting a good interest rate for future credit cards? If you’re tired of waiting to rebuild your credit through the normal way of making monthly payments, chances are you’re seeking alternative ways to rapidly rebuild your credit to get better rates. There are a few different options available; we’ll discuss which of these methods are useful and are worth looking into.

 

Do you need it?

 

Before taking any steps to rebuild your credit by taking out a loan, be sure it’s absolutely necessary.

 

A credit score is composed of various factors, including payment history, the amount you owe, how long you’ve had credit, how much new credit you have, and the mixture of credit types used. Installment loans can be a great way to boost your credit score while adding an alternative type of borrowing on your history.

 

The tricky part comes down to interest rate. If you’re able to take out a loan to pay off your credit debt, it’s definitely worth a consideration, but only if you’re going to pay less in interest. However, with credit card debts often running as high as 24.99 percent and personal loans averaging about 10 percent, this is often not a problem.

 

As far as your options to rebuild your credit, there are three quick choices:

 

1. Rapid Rescoring

 

A little known process, rapid rescoring can give a boost to those who are applying for loans and currently have low scores. If you’re at risk of a high interest rate, a lender may initiate this process on your behalf, which removes any inaccurate information on your history.

 

2. Personal Loan

 

When rapid rescoring is insufficient for improving your credit score, it can help to take out a personal loan, paying off your old debt, and repaying the new debt as agreed. This comes with a number of benefits, such as reducing the age of your existing debt, adding positive activity to your report, and reducing the overall interest rate of your payments.

 

3. Car title loan

 

If you can’t get approved for a personal loan, you may be able to put your car up as collateral through a car title loan instead. The biggest benefit is that you rapidly receive the money you need, rarely having to wait more than 48 hours. The process is very simple, requiring a minimal amount of personal and financial history as well as basic information about your vehicle.

 

In fact, your credit history has no bearing on whether or not you can receive a title loan; the only usual criteria include being 18 years of age and owning a car outright. Because you’re putting collateral up, no background check is required for this secured loan, unlike with personal loans.

 

Another positive benefit for taking out a title loan is that the lender can only have the car if you don’t make the payments; it’s still yours to drive around in as long as you’re making the agreed upon monthly payments. There is no change to your everyday life, although you will need to provide a copy of your car keys and the title to the lender as insurance for the loan.

 

Finding the best interest rate

 

The following tips can help you find the best possible interest rate for whatever type of loan you seek to rebuild credit:

  • Shop around. The numerous lender choices out there help keep the honest ones competitive, so be sure to shop around for the best possible realistic rates for your credit score.
  • Request detailed quotes. When requesting information, offer all the information you can to get the most accurate information.
  • Don’t aim for the lowest monthly payment. Although many honest lenders can offer low monthly payments, there are some who will offer such without revealing a high interest rate or lengthy repayment period. To avoid this, be sure to demand a detailed outline of your quote.
  • Add a cosigner. When your own credit isn’t stellar, adding another cosigner with better credit will improve your chances of being approved for a personal loan. Be sure both of you understand the terms and responsibilities involved in jointly taking out a loan.

Regardless of your final method, getting a personal loan to rebuild credit can seem like a tricky thing to do. However, with a little ingenuity and plenty of homework, you’re sure to find the right lender offering an agreeable set of terms at an affordable rate.

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