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Borrowers with bad credit can get emergency cash by applying for subprime debt instruments such as automobile title loans. Bad credit is usually caused by missed or late payments to creditors that you owe money too. So if you have ever paid your utility bills late, missed a few payments on your credit card or have outstanding medical bills because your insurance didn’t cover a procedure you are likely to have a low score.

Since most lenders report this information to one of the three credit bureaus, Equifax, Experian, and TransUnion they will keep records of your credit history on file for years. Lenders use the information collected by these agencies, to determine the risk in lending to you.

The agencies will lower your rating and lenders will see lending you money as a high-risk investment, if you have a history of missed and late payments on your previous debts or home mortgage. Once you acquire a bad rating, it will be very difficult to get money from traditional lenders.

An automobile equity loan can provide emergency cash for subprime borrowers, but it can also help improve a borrower’s rating if it is paid back on schedule, strictly according to the repayment terms of the agreement.

How To Use an Automobile Equity Loan to Rebuild Credit

The major benefit of taking automobile equity loans is that even if you use your car as collateral, you get to keep and drive your car while repaying the debt. So you will not disrupt your lifestyle, as long as you manage your budget and repay the debt on schedule. To reestablish credit, you need to demonstrate an ability to manage your payments and debts wisely and responsibly.

An automobile equity loan is secured by the borrower’s car equity, which is used as collateral for the loan. Having bad or no credit record does not restrict you from getting an equity loan, but should you default on the payments, your automobile will be seized and sold, in order for the lender to cover the debt and the costs of the process.

An automobile equity loan must be paid back strictly following, the payment schedule in the agreement, in order to boost your rating. The agencies are then notified of your record of payments. And because the bureaus are more focused on your recent payment activity, consistently paying back the debt on time, will help you establish a more positive payment history.

To use an automobile equity loan to reestablish credit, its best to take a short-term loan with a lender that offers competitive interest rates, that way you will be paying the least amount of interest over the term. Some lenders are licensed to operate multiple states including Illinois, Arizona, South Carolina, Oregon, and New Mexico.

Find a reputable lender that offers auto equity loans to those who have bad or no credit and offers flexible terms to help borrowers make payments according to their needs and financial situation. Also make sure the lender charges no pre-payment penalties, so you are not penalized for trying to pay back the loan earlier than the terms of the agreement allow.

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It’s a challenge for many individuals to fix their individual credit scores to avail of loans which are given in good terms and with the lowest interest rates. Here are some tips to follow:

Paying of bills on time will not only make you a good payer when establishing credit but will more than increase your score. Late payments on credit card bills and loan installments will not only have a negative effect on the score but will seriously damage it. Lenders would want to know how timely bills are paid which will greatly affect history.

Do not apply for too many cards thinking this will increase credit score but reduce the number of cards you carry instead. Write a letter of request to your creditors to close your accounts or better still, reduce the limits on your accounts to lower the amount of available credit and report this status change to all three credit-reporting agencies. Limit the number of cards owning only a couple that you can manage. Credit card used for the purchase of luxuries should be cut down to avoid unnecessary purchases and buy only necessities. Avoid closing card accounts with a zero balance. Note that the ratio of total debt accounts and total credit line accounts is another factor that determines your score.

Avoid possible bankruptcies, tax liens (a lien for not paying state or federal income taxes or property taxes) and considerable collections by being a good payer. A bankruptcy record is very damaging as it stays on the report for up to 10 years while collection accounts and paid tax liens stay for up to seven years, and unpaid tax liens will stay forever.

Get a secured card to help re-establish your credit by asking a family member or friend to co-sign on a small loan or card. Make sure that you keep a designated amount of money left in an account sufficient to cover the charges.

Get a yearly copy of your report to catch any errors. According to the law you are entitled to a free report from each of the three agencies once a year. Check the report for accuracy because data such as late payment and incorrect balances will surely harm the score. If errors are found, use the dispute tools or forms found online or call the phone number of the agencies issuing inaccurate information.

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