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Three Simple Steps to Building Good Credit With a Bad Credit Personal Loan

[Mar 3, 2010.]


People who have credit problems often find themselves involved in a vicious cycle. Credit mistakes in the past make it difficult, if not impossible, to get loans in the present, which makes it difficult, if not impossible, to prove that one is now a creditworthy borrower.

Thus, bad credit borrowers end up having to access payday loans or high interest personal loans that carry high fees and high interest rates.

But is there a way to use these bad credit personal loans to actually build good credit? There may be, for the bad credit borrower who heeds these three simple bits of advice:

1. Establish a Good Relationship With At Least One Lender

Why do lenders lend money? To make money, obviously. And this is, of course, why lenders are so wary of lending to people who have a history of not paying back loans on time and in full--because no lender is looking to lose money. Duh, right?

But what may not be so obvious is that bad credit is all in the eye of the beholder. That is to say, if a borrower can show that the last two or three times they borrowed money, they paid it back on time and in full, the lender may be willing to lower the interest rate the next time around.

Build a relationship with one personal lender, rather than shopping every loan separately.

2. Work With Lenders Who Report to the Credit Bureaus

Many bad credit lenders don't report to the credit bureaus. It's best to work with one that does.

3. Get It In Writing

There is something about a written letter that is timeless, especially when it comes time to apply for a loan. Bad credit borrowers who can solicit letters stating that they are creditworthy may find that these letters can persuade lenders to consider more than just the credit score as is.

Similarly, bad credit borrowers can consider reviewing their credit report and writing a short (100 words or less) notation about any errors on the report--the credit bureaus are (with certain exceptions) required by law to include these notations so that future creditors can hear both sides of the story.

Paying Back Bad Credit Personal Loans Is a Good Idea

Speaking of mastering the obvious, the best way to use bad credit personal loans to build good credit is to pay back these loans on time and in full--no excuses, just get the job done no matter what.

That, after all, is what good credit means in the end--you repay what you borrow.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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