What is bad credit and how to fix it?
When you talk about a loan, or basically the level of credit potential lenders have that you will pay the money you lent, you could fall anywhere on the scale of bad credit, which means that no one will lend you money, they have outstanding credit , where banks and credit companies virtually require you to borrow. Most people fall somewhere between these extremes.
How to define “bad” credit?
Bad credit generally describes a record of past failures to continue making payments on your credit agreements, resulting in an inability to get approved for a new loan.
This usually means that you did not pay your credit and other obligations on time, nor did you pay them at all. Your credit report also considers public records such as any state or federal tax, bankruptcy, or legal judgment against you.
Companies that call credit bureaus (also known as credit reporting agencies) collect your credit history and compile it into a credit report. Each agency keeps its own separate report, and your credit history and results may differ between them, due to errors or omitted information. Although you will see the data and history for all your actual credit accounts in your credit report, you will not find any credit score on your credit report.
Each credit bureau calculates a FICO score based on your credit information. Fair Fair Corporation (FICO) has developed software and algorithms to calculate this result; therefore, the name.
Different companies such as car lenders, mortgage lenders and credit card companies treat potential borrowers differently according to their needs, so as to accommodate this, there are dozens of variations and FICO score calculations. Credit scores range from 300 to 850, with 650-670 being considered a lower “good” credit score and lower scores indicating weaker credit.
Having lots of negative records, delays or potential default on your credit report can undoubtedly lead to a downgrade. If you had bills sent to a billing agency, such as unpaid medical bills, the billing agency could report your delinquency to credit bureaus even if the hospital did not.
Adverse credit often results in people going through a rough place financially, triggering multiple negative events in a short period of time, such as charging high balances on credit cards recently, filing for bankruptcy, or owning a repossessed vehicle. Some negative events only need to happen once, such as tax law or foreclosure property, for lenders to be cautious about working with you.
Fallout from bad credit
When you have bad credit, lenders are less likely to lend to you because of the increased likelihood that you may fall behind on new credit cards or credit accounts. You may find all of your loan rejection applications, or if you get approved, you are likely to receive a much higher interest rate than borrowers who have a good credit score. An increased interest rate is a way for a lender to offset the risk of borrowing money for you.
Bad credit drives more than your credit card and credit approval and interest rates.
Some insurance companies consider your credit score when they quote you in ins rate. Utilities and cell phone providers often charge a security deposit for applicants with poor credit. Homeowners may require a higher insurance deposit if you have poor credit, or they will completely exclude you for a lease or lease agreement.
Check your status and FICO results
If you usually stay on top of your finances, you may have a decent idea of where your credit score will fall. Do you know that you have been late in making any loan payments lately or have large credit card balances in excess of 30% of your available credit. If you have recently had declined credit applications, your credit card interest rates have gone up, or card issuers have lowered your credit limits, take these things as a sign that your credit score is on the way down.
Find out your FICO credit score and get a copy of the current information on your credit record. You can learn that one of the credit bureaus did not record an account that has a positive payment history, or you could even find errors that necessarily lowered your credit score.
Checking your credit report will help you discover what is detrimental to your credit score. You can also get free estimates of your FICO score by signing up for one of the many credit monitoring websites. Many of them offer a basic account with FICO scores of one or two of the three credit bureaus at no charge. You don’t have to spend money to find out what causes bad credit. Many of these sites also have bonus simulators, which shows you how much your credit score could move up or down by paying your bills, opening new accounts, and making other changes.