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Saturday, February 28, 2009

When a Bad Credit Lender Comes in Handy

By Tom Peters

What if you need a bad credit lender? Do you know what one is, or what kind of credit is "bad", in the first place? Well, for starters, standards for what constitutes bad credit can vary from credit bureau to credit bureau. It's generally accepted, though, that credit is deemed bad when it sinks below a 500 score as ranked by the Fair Issac Credit Organization (FICO).

Credit Reporting Bureaus: All three of the major bureaus (Experian, Equifax and TransUnion) have their own methods for generating a "FICO score" (pronounced "Fy-Koh"). Yet most of the time, all of them are within a dozen or so points of each other. These bureaus also take a lot of factors into account when it comes good or bad credit.

Giving Loans to People With Bad Credit: There are many lenders out there who specialize in people who may have bad credit scores. Known, as "sub-prime lenders," they're able to many times give a loan when most traditional lenders can't or won't. But, their loans can cost more, in terms of interest. Still, people of high character but poor credit, for one reason or another, may need to use these lenders. This is especially true in tough times.

Varying Lending Rates: Because the risk to the lender is greater, the interest rates on these loans can be higher. Sometimes by a lot, as illustrated by loans that go right to the interest limits set by law. You should check around, though, to see if one of these sub-prime lenders will offer a better rate before signing any loans.

Beware Loan-Shark Lending: Sub-prime lending serves a useful purpose, especially when truly good people fall on poor credit issues. Some probably have nobody else to turn to in tight credit markets. It's best to keep an eye out, though, for lending which resembles loan sharking in appearance. By this, we mean tacking on double surcharges, extending the life of the loan without permission, and funny service charges, for example.

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