If you’re like many people that have applied for a personal loan, you might feel at least a little bit persecuted. The bank advertises these low rates, and you hear about friends and family who are able to get loans at great rates, yet when you apply, you don’t get the same great rates.

Have you ever wondered why that is? Of course you have. To understand why this happens, however, you need to understand something about how personal loan rates work: Banks can charge what they want. There are federal laws that determine what rates banks can charge for military personnel, but other than that there is little in the way of federal regulation that deals with personal loan rates.

You also need to know that your credit score plays a major role in the rate the bank is willing to give you. Accordingly, here are some things you can do to keep the old credit score in a manageable position:

• Keep your credit balances low. If you have credit cards (and you should, if you want a high credit score) keep the balances low or paid off. This will help keep a low ratio of income to debt.
• Don’t have too many credit cards. Having a couple of credit cards is fine. More than four or five is probably too many.
• Pay off your bad debt. Once a debt goes bad, paying it off is imperative and will help out some.
• Get rid of small debt. If you have multiple collections, for example from bad checks, pay them off. They’re hurting your credit score just as much as that late credit card payment.
• Consider negotiating large debt. In some cases, if you can’t pay off a debt, you may be able to settle. It will hurt your credit score, but not as bad as not paying it at all.

Photo via christine [cbszeto]