If you’re facing a cash crunch and have essential expenses such as medical emergencies, mortgage payments or home repairs to take care of, you can imagine how much easier it would have been if you had saved up a little rainy day fund.
However, like most of us living from paycheck to paycheck, you may not have managed to set aside that small emergency fund. And if you’ve already defaulted on previous debts and have a bad record, you’ll have a hard time getting a traditional lender to loan you the money you need to make that all-important mortgage payment.
But even a subprime borrower can get loans for immediate, short-term needs. For borrowers with a less-than-perfect record of repaying debts, emergency cash can be granted through options such as cash title loans. When time is of the essence, auto title loans can come to your rescue.
Auto title loans are not just emergency funds to help you get through a rough patch. When used responsibly, they can also help you reestablish credit and improve a bad record. If a subprime borrower can improve their rating, they will save money when they borrow in the future.
In order to achieve this, you need to make an effort to understand why you have a bad rating and work to improve it. If you can manage to improve your record, you’ll have access to more and better borrowing options in the future.
How Are Credit Scores Calculated?
A credit score summarizes a borrower’s credit history into a single number to determine the likelihood that borrowers will pay their bills. These ratings are calculated based on a complex formula that evaluates a person’s history of repaying debts and assigns point values for different factors.
A FICO score is a rating developed by Fair Isaac & Co. Credit scoring, the company that developed the scoring method, and the software that is now being used by the national credit bureaus. Your FICO score determines your ability to pay back borrowed money. Lenders consider your FICO score to quickly assess your credit worthiness when applying for a loan.
Establishing a trend of good credit history is one way to help improve a low FICO score. By paying back a cash title loan properly, you can actually use it to improve a bad rating, because this will add a positive mark to your credit history.
Cash Title Loans and FICO Scores
When you apply for cash title loans, your lenders will run a credit check. A low FICO score will not disqualify you from getting approved because the cash title loan is secured by your auto equity and the lender incurs less risk when lending to a subprime borrower.
When you repay a cash title loan on schedule, according to the terms in the loan agreement, it will demonstrate a positive payment record and show responsibility in handling your finances. This act could help improve your FICO score because the bureaus give more credence to recent activity in repaying loans than to past history.
However, to ensure that you do not get caught in a debt trap, make sure you choose a reputable lender that specializes in higher-limit cash title lending and offers you terms that you can handle. Defaulting on your cash title loan will not only cause you to lose your vehicle, but also prove disastrous to both, your finances and your FICO score.