Bad Credit Loan Articles and Blog Posts
Maybe we are learning from past mistakes, or maybe we just don’t want to turn into our parents, but whatever the reason let’s keep it up! Americans are slowly (but surely!) getting out of the debt trap and making on-time payments to credit cards.
As of recent, studies have reported that the frequency of late payments on credit cards is at the lowest level it has been in almost 20 years. Late credit card payments (90 days overdue) have fallen to 0.57% in the second quarter. This rate was reported by credit reporting agency TransUnion as the lowest since 1994, when the rate was 0.56%.
In comparison to credit card delinquency rates of last year, this improvement is substantial. The April-June delinquency rate of last year was 0.63%, so this term’s lower rates show Americans spending more responsibly and practicing healthy money management.
With credit card debt being an average of $4,965 per borrower in the second quarter, consumers are being more cautious about credit usage than in the past, but still have work to do before feeling debt-free.
Things are also looking up in the employment world, with employers creating 189,000 new nonfarm jobs on average every month so far this year. Employment rates are better than they have been in around five years, with a low of 7.4% in July nationwide according to a recent report made by the Bureau of Labor Statistics.
Though the United States has come a long way from the Great Recession, consumers need to still be wary when it comes to irrational spending. Building a healthy credit score is crucial to taking out loans and applying for credit cards. According to the VantageScore credit rating scale, a credit score is lower than 700 could be considered a poor score, and might be denied loans. A bad credit score doesn't mean there is no possible way to take out a loan, and an unsecured personal loan can always be considered.
A bad credit loan is a good option when a consumer with a bad credit score is in a financial emergency, and all other options have been exhausted.
We've been reviewing the Pew Study on Payday Lending in America - an amazingly well written study published in 2012 on payday and bad credit loan lending and the borrower behavior that surrounds them.
In this section we look at "What Would a Borrower Do Without Payday Loans as an Option?"
The study cites some not so surprising behavior including:
- People (81% to be specific) would immediately cut back on expenses such as food an clothing (why they have not cut back already is a mystery to me....);
- Many would delay paying some bills (probably not the cell phone bill though...);
- Borrow from friends (look out...);
- And even sell some personal possessions (you gotta like Craigslist!!) or even pawn them with the hope of getting them back someday.
- Less than half would borrow using a credit card (good...) and a few would ask their employer.
It may sound trivial sometimes to think about what people would do without these loans but over 12 million people every year use a payday loan so the numbers are real.
Stay tuned for Part 4 of the Pew Study Summary.
Though it may not be a quick fix, paying rent on time can improve credit scores. Dealing with a bad credit score might make it difficult to take out a loan, though of course you can always apply for an unsecured bad credit loan. While unsecured loans and even bad credit credit cards provide options for people with poor credit, it is also important to start thinking about the ways in which you can improve your credit score in the future.
Get Credit for Paying Rent
Up until recently rent payment history was not included in credit history reports or scores. What a jip for people who pay their rent on time, right? Experian took the step in December 2010 and now includes rent payment data on credit reports, which is great news for those responsible rent payers out there. TransUnion has also started to include rent history on credit reports, which means consumers can start using responsible rent payment to build their credit.
How Does it Work?
According to Experian, property management companies update rental payment data in order to report positive or negative payment from renters. This can be good or bad, depending on the renter’s payment history. Renters should be wiping those I’ll-pay-you-next-week expressions off their faces and start thinking about how paying on time can benefit unhealthy credit scores.
Know if Your Landlord is Reporting
If you pay rent on time and want it to count for something, it might be beneficial to contact your landlord or property management company to find out if your rent payment history is being reported. If not, don’t worry, it can be fixed. There are rental payment services that work hand-in-hand with Experian in order to ensure good payment history is reported and credit is built.
Most people would assume that it's simply not possible for people with bad credit to apply for and actually get a credit card and not get completely ripped off! But think again... the credit card companies have products for virtually all credit types including folks with bad, fair and no credit. These cards are not the same cards people with good credit get but they are cards and they do provide credit in some form. They can also help you rebuld and repair your credit.
Many of the well know companies offer cards including Capital One, American Express and Prestige. Bad credit credit cards come in three distinct categories:
Unsecured credit card highlights:
- Does not require you to put up a deposit or prepayment;
- May carry higher fees or interest rates than other cards;
Secured credit card highlights:
- Requires some security or deposit up front;
- Good for people specifically looking to rebuild credit;
- You get back in the game of using and building credit.
Prepaid credit card highlights:
- Like it sounds, you prepay an amount and are limited by that amount in charges;
- Replenish when you hit your limit;
- Good way to manage your spending and not exceed your ability to pay.
Applying for a card is easy.. visit our credit card page for people with bad credit and apply for your card today.
It’s not the end of the world if you have bad credit. As we have often discussed here before, you can always take out a bad credit loan if you have poor credit and it’s never too late to start rebuilding credit. In our blog, The Top Causes of a Bad Credit Score, we revealed what behaviors can lower your score, but what are some financial actions that won’t damage your credit score?
1. Checking Your Own Credit Score
Checking your own personal credit score won’t harm your credit score at all. When you personally look into your own report it doesn’t have any affect on your credit score. Keep in mind though, when lenders and credit card companies run credit checks, such hard inquiries will temporarily lower your score.
2. Your Salary
It doesn’t matter whether you make a ton of money or make minimum wage, your annual income does not reflect your credit score in any way. Some information about your employment may show up on your credit report, such as your place of employment and address, but the credit bureaus won’t factor any of that into your credit score.
3. Paying Rent Late
Unless your landlord evicts you or takes you to court for an unpaid judgement, a late rent payment will not lower or affect your credit score. Just remember that if you have poor credit in the first place, the landlord may not accept your rental application.
I think most people tend to believe that borrowers use bad credit and payday loans to cover life’s unexpected emergencies over the course of weeks not months – not so according the 2012 Pew Study on Payday Loans mentioned in previous blog posts. While it’s true that many people borrow primarily to cover life’s emergencies, most people with bad credit borrow to cover ordinary living expenses over the course of months and the average borrower is indebted for five months of the year.
Pew researchers cited that the average borrower took out eight loans that lasted an average of eighteen days each (which is where the Study concluded that the average borrower was indebted 5 months per year).
Here are some interesting stats revealed in the 2012 Pew Study... First time borrowers took out a bad credit loan as follows:
- Sixty-nine percent (69%) used a loan to cover a recurring expense or other debit such as a credit card bill, rent, utilities, rent, food and even a mortgage payment.
- Just sixteen percent (16%) borrowed to cover an unexpected expense such as a medical expense or car repair.
Next: What Would People with Bad Credit do Without a Payday Loan?
Understand What the Credit Bureaus Report
A recent Consumer Federation of America and VantageScore Solutions consumer survey uncovered that two-fifths of the 1,022 adult sample incorrectly believed that certain personal information such as marital status and age appeared on their credit reports. These results prove that many of us have no idea what kind information the credit bureaus place on our credit reports.
And although our past blog post, What Information Shows up on Your Credit Report?, explained in detail what you can expect to see on your credit report, it’s a good practice to pull your credit score and see for yourself.
See Improvements You Can Make
If you pull your credit report information and see tons of missed payments, maxed out credit card accounts, or countless hard requests, you may want to take note of these. Your credit report is a record of all of your financial behavior, both good and bad, so if it’s filled with negative marks, it’s a good idea for you to make some changes. For example, if you see tons of hard requests, you may want to refrain from applying for lots of loans and credit cards in a short period of time.
Unfortunately, it’s not rare that consumers find mistakes on their credit reports. And sometimes such an error could lower your credit score, so it’s important that you keep an eye out for any mistakes.
If something looks fishy, compare it to your records, and if it still doesn’t match up contact the credit bureau. Send a letter with evidence that supports your claim and requests that the bureau investigates the issue.
Detect Identity Fraud
The possibility of identity fraud should be enough to encourage everyone to check their credit reports. Sadly, however, it’s often times not until the collectors are knocking on your door and demanding payments when you realize that someone has created a credit card account in your name and has used this account to make extravagant purchases.
However, when you regularly check on your credit report and look for any credit card accounts that you didn’t set up yourself, you can nip any issue in the bud. Finding the problem before it’s full blown will be a lot easier than dealing with angry debt collectors down the road!
American Consumer News recently reported that some payday lenders have found partners in big banks. The report revealed that major banks such as Bank of America, Wells Fargo, and JPMorgan Chase have sided with payday lenders providing them with access to borrowers’ bank accounts.
Although the banks are not responsible for offering the loans to borrowers, they let lenders withdraw payments from borrowers’ bank accounts. And in some cases these withdraws lead to overdraft charges, which cost the borrowers additional money.
State and federal officials have raised their eyebrows at these recent findings, as they begin to determine the banks’ role in these partnerships. Officials worry that these banks are surpassing individual state regulations and providing lenders access to the borrowers’ accounts in certain states where payday loans are illegal.
Meanwhile, in order to help prevent illegal practices associated with payday lending, lawmakers have sent a bill through Congress, which if it passes, will require lenders to follow the lending laws of the state where the borrower lives instead of where the lender practices.
So what does this mean for you? Well, the way payday lenders and banks operate may change in the future if this bill passes, but for now, it’s a good idea to check your state’s rules and regulations regarding payday loans to ensure that your state permits cash advance lenders.
According to a study done by The Pew Charitable Trusts in July, 2012, over 12 million Americans use a payday loan each year. How many? TWELVE MILLION which means demand is high.
The Pew Study goes on to cite that over 5% of all US adults have used a payday loan at some point over the past five years and the average borrower takes out eight (that seems high to me) loans averaging $375 each year which equals a total of $3000 per year. These borrowers average about $520 in interest. About 1 in 4 borrowers go through an online site and 3 in 4 use a physical storefront lender.
The same study went further to see “who uses a payday loan” and found that the most borrowers are white females between 25-40 years of age. When controlling for other factors the study cites these groups also more likely to borrow:
- People without a 4-year college degree;
- African Americans
- Folks earning <$40,000 per year
- People that are divorced or separated
Just having a lower income does not mean “more likely to borrow money using a payday loan”… Lower income, when combined with renting is more predictive than lower income but owning a home.
So there you have it. Full and complete? Probably not. But it is a very good study and overview that frames up the market.
Next: Why Do Borrowers Use Payday Loans?