Bad credit is a self-fulfilling prophecy. A bad credit score is the result of late or missed payments on installment contracts like mortgages and car loans or on revolving lines of credit like home equity loans or credit cards.

Missed or late payments can lower an individual’s credit score to a point where a current or prospective lender deems the individual to be a “fair” or “poor” or even “unacceptable” credit risk. If a loan or credit card is issued, interest rates will be considerably higher than for a “good” or “excellent” credit score. Higher interest rates make it more expensive and therefore more difficult for a borrower to pay back the loan. As paying back the loans becomes more difficult, late or missed payments become more frequent and the self-fulfilling prophecy of bad credit is the result.

A “bad credit” loan can help break the cycle of higher interest rate payments that result in more late payments. Some lenders specialize in granting loans to borrowers with fair, poor or unacceptable credit ratings. The lender will grant the loan with the goal of consolidating the borrower’s existing credit items and paying off the credit cards and car loans. The purpose of the loan by the lender is not to grant additional credit but make it easier for the borrower to pay off the credit already granted. A lender will pay off existing higher interest loans and the borrower will then make a monthly payment to the lender that is less than the total payments the borrower was making to the credit card companies and for any other loans the individual may have had.

This “starting fresh” approach enables the borrower to demonstrate that credit card balances and loans have in fact been paid off and that the borrower is consistently making one monthly payment to the new lender. These factors will help rebuild the borrower’s credit score. During this rebuilding process it is vitally important that the individual make the monthly payments, on time and resist the temptation of using the credit cards that were just paid off or applying for new cards.

There are many “bad credit” lenders available especially online. Typically these lenders will lend amounts from $1,000 to $25,000 with some lenders offering maximum amounts of up to $250,000. Requirements for loans will vary among lenders but will include verification of employment, over 18 years of age, a viable checking account for both depositing the loan proceeds as well as automatic withdrawal for loan payments. Depending upon the lender and the amount requested collateral in the form of a car title or real estate may be required.

Before obtaining a loan from any lender the borrower should research reputation of the lender. Contacting the local Better Business Bureau is just one way of determining whether the lender is reliable.

For individuals with ‘bad credit” a loan from a reputable lender can restore their financial stability and break the self-fulfilling prophecy of bad credit scores.