Were you asked for a high utility deposit? Did your cell phone company deny your contract? You might’ve been living with the side effects of bad credit for a while.

Now you are considering taking a bad credit loan to consolidate your debt. Will it affect your credit score? You aren’t the only one thinking about it twice.

Many people hesitate in applying for a bad credit loan because they don’t know anything about the aftereffects. But, don’t worry. We’ve you covered.

We’ll tell you all about the effects of bad credit loans on your credit score and why you should consider getting one today. Keep reading to learn more.

The Aftereffects of Bad Credit Loans: Is It All Good?

Bad credit is more common than you think. About a third of Americans have poor credit. Most of them don’t even know it till a bank denies their credit application.

Maybe you have been in the bad credit league for a while. It will take some time to increase your credit score. Most of all if you suffered difficult financial situations such as bankruptcy or collections.

Your payments are piling up and you need a breather to buy your dream house or even save for retirement. Getting a loan can help you consolidate your debt into a single payment but, will it hurt your credit?

You have been working hard on improving your financial situation to lower your score by applying for a loan. Maybe you made peace with your credit rating but, don’t want it to get lower.

How Does Your Credit Score Work?

Before learning the effects of a bad credit loan on your credit rating, you must understand how your credit score works. How is your score calculated? Who keeps track of your credit?

You might think that you only have one credit score. Yet, that is far from the truth. Companies known as credit bureaus keep track of your credit and calculate it according to their scoring model.

Lenders pull your credit from one of them when you apply for credit. Scoring models vary on a credit bureau basis. These companies update and change these metrics frequently.

This makes difficult to calculate your score yourself. But, today many financial institutions offer their clients monthly updates on their FICO score. You should consult your banking institution to learn if they offer the service to track your score.

You might think that your credit report includes your score but, remember that every credit bureau keeps their own score. It’s recommended that you get your yearly free credit report to keep track of your credit history.

If you do this you can learn what you are doing wrong and get any inaccurate information removed from your credit. It’s essential to keep an eye on the factors these credit bureaus use to calculate your score.

Here are the most important elements taken into consideration when the bureaus calculate your credit rating.

1. Payment History

Your payment history is the most important factor considered by credit bureaus. Besides your late fees, making your payments after your due date hurts you more than you think. This factor determines 35 percent of your credit score.

2. Debt or Credit Utilization Ratio

Your financial situation may push you to use all your available credit. But, your credit usage can hurt your credit score.

It’s recommended to keep your credit utilization no higher than 30 percent so it doesn’t lower your credit score. Your debt ratio determines 30 percent of your credit score.

3. Your Credit History Age

Like when applying for any job, your credit experience will influence your score. How old are your accounts? Some consumers believe that paying off and closing a credit account is better for their credit rating.

Yet, that’s far from the truth. But, only if you don’t have a history of late payments or other negative items on those accounts.

Owning accounts for a short period of time can help your credit if you are current and making your payments on time. The bureaus use this factor to determine 15 percent of your score.

4. Types of Credit Accounts You Own

Credit bureaus determine 10 percent of your score based on the type of credit accounts you own. Do you own revolving accounts, loans or both? Owning both types of accounts is better because it shows experience managing credit.

5. Number of Credit Inquiries

Most credit applications require a credit pull or inquiry. When a lender does a hard pull on your credit, it lowers your credit score. Credit bureaus keep a record on your report of all your credit inquiries.

They use the number of credit inquiries in the last 12 months to determine 10 percent of your credit score. Hard pulls stay on your report for 2 years.

What Happens When You Take a Bad Credit Loan?

When you take loans for bad credit, your lender may run a soft credit check or not even pull your credit. A soft check isn’t recorded on your credit report so it won’t lower your score. When you take a loan and it’s recorded on your credit report, you might see your rating lower a bit during the first month.

But, it will stabilize as you start making your payments on time. Taking personal loans for bad credit can help you improve your credit. Most of all if you use the funds to consolidate your debt and lower your credit usage.

Keep in mind that not all lenders report your loan payments to the credit bureaus. If you intend to take a bad credit loan to improve your credit, you should ask your lender about their credit reporting policies. Also, you should consider a bad credit personal loan instead of a quick loan.

Remember that your payment history is a top priority for credit bureaus. The more on-time payments your lender reports, the more you can improve your credit score.

Should You Get a Bad Credit Loan Today?

Yes, you should consider bad credit loans to meet your financial goals. These loans can help you consolidate your debt and even help you improve your credit.

Make sure to get your loan at a lender that reports your payments to the credit bureaus. Keep in mind that you should work on the other important credit score elements as well. Focus on applying your own all-around approach to achieve your financial goals.

Now that you know how these loans can help you improve your credit rating. Want to get a bad credit loan today? Read our article to learn how to get your loan in no time.