Are you trapped with poor credit history? You might want to read this.
Poor credit can stop you from dying in your tracks and prevent you from securing loans. Whether you want to get a mortgage, an education loan, a car loan or a personal loan, a bad credit score will become a significant hindrance.
Luckily, a few institutions allow you to apply for bad credit loans even if your credit record isn’t great.
Dive right in and learn more about what bad credit is, what leads to bad credit, and how you can overcome it.
What Is Bad Credit?
Credit scores are calculated between a range of 300 to 750. While anything over 700 is considered good, a score below 550 is regarded as a bad credit score.
When you apply for a loan, the lending institute looks into your credit file and credit score to assess the risk of lending you funds.
If you have a decent score, your chances of securing a loan shoot up. However, a poor credit score increases the chances of your loan request getting rejected. Even if you do secure a loan, you might have to pay higher interest rates.
Although you cannot do away with your poor credit history, the bad credit items on your file are removed after a stipulated period.
What Leads To Poor Credit?
If you’re wondering how you end up with bad credit on your file, here are a few instances that can trigger it.
1. Home Loan Arrears
Missed payments on your mortgage can reflect negatively on your credit score. The more payments you miss, the more sceptical lenders will be.
Typically, banks do not refinance your loan even if you miss just one payment in the preceding 24 months.
2. Unpaid Taxes Or Bills
Outstanding taxes or bills do not always show up on your credit file. However, banks ask you to provide several supporting documents.
These defaults might be visible on the additional documents that you provide to the bank.
Banks might classify some cases as beyond help. It usually happens when you commit more than you are capable of.
If you have too much debt and it cannot be justified by your income, the bank may label you insolvent. The same happens if your total liabilities are more than your total assets.
4. Business Troubles
Your career can also influence your personal credit history.
If you’re a director of an enterprise undergoing financial stress, liquidation, or receivership, it might reflect on your credit score.
5. Past Record
If your credit file is peppered with defaults, judgements, or multiple enquiries, banks might become wary of lending you money.
If you have a pre-existing troubled relationship with the lender, it will also reduce your chances of securing a loan. Lending institutions tend to be sceptical about the people that have troubled them in the past.
If you don’t want your poor credit score to clip your wings, you can always apply for bad credit loans. Moreover, you can even work to improve your score.
Small steps, such as paying bills on time and clearing your debt, can go a long way in enhancing your credit score. You should also lower your credit card limit and restrict your credit card applications.