Dealing with a low credit score or bad credit can be a frustrating, disheartening and life altering issue. Consumers who are left dealing with the results of unfortunate financial decisions may find themselves in a situation where they are unable to find financing for a car, home or any other line of credit, a position in life which can be incredibly limiting. Beyond that, a low credit score can also affect the cost of an individual’s auto insurance as well as their ability to qualify for a bank account or other financial service. This can prevent an individual from being able to live a normal life and may leave them wondering how they can possibly get out of the mess they are in.
How Can Bad Credit Be Dealt With?
One of the main issues with low credit scores and bad credit is that people who are dealing with these challenges do not know how to go about remedying them. This often happens because they are not entirely sure of how credit scores are measured or what specifically put them in the situation they are in financially. An individual’s credit score decreases any time they do not comply with a financial agreement that they have made with an institution such as a bank, company or creditor. The institution that has gone unpaid by that individual will report the transgression to a company called a credit bureau. Credit bureaus are the institutions which generate credit reports, a history of financial behaviours, mostly of the negative variety. Credit reports contain information on loans that have been defaulted on and other debts that have gone unpaid. A credit report contains any reported financial indiscretions of a person over the course of approximately 10 years. These unpaid debts, or lack thereof, are tallied- from this, a credit score is born.
How Is Bad Credit Obtained?
There are many causes for bad credit, but it is important to understand that one payment being late or missed will not have a majorly detrimental effect on the credit score in almost any case. A credit score begins to be affected when a consumer starts to display a pattern of irresponsible financial behaviours. One of the most significant causes of low credit scores and bad credit is debt on credit cards. When a consumer pays their credit card bill late or does not pay it at all on repeated occasions, their credit score will decrease. If a credit card has a high balance for a long period of time, this also reflects detrimentally on the individual who has the card. When utilities are not paid on time, the credit score of the individual in whose names the utility bills are sent will suffer a reduction in their credit score. A defaulted loan or a bill which is sent to collections are both major causes of bad credit, as are declaring bankruptcy or having a major asset repossessed. Negative bank balances are also detrimental to a credit score, as is the act of applying for multiple credit cards or loans in rapid succession.
Why Does Bad Credit Matter, And Why Do Financial Institutions Care About It?
The key reason that it is important to maintain a good credit score or rectify a bad one is that banks and financial institutions look at a credit score when determining the risk factor in lending money, offering a line of credit or having any financial dealings with an individual. When the credit score is low and a credit report reveals a history of late and missed payments as well as financial irresponsibility, an individual is characterised as high risk. When this happens, getting a loan or line of credit easily or with a reasonable interest rate becomes nearly impossible. These institutions do not care about any circumstantial factors that contributed to a fallen credit score such as illness or unemployment, they only see what is on paper in black and white in front of their faces. Having no credit history can be equally detrimental because it renders financial institutions unable to determine the risk factor of an individual.
What Does Bad Credit Effect?
There are many basic aspects of life that can be negatively effected by a low credit score or bad credit. Finding a line of credit or a loan, even in an emergency situation, can be very difficult. This can lead to dealing with short term loans from unscrupulous lenders with exorbitant interest rates that are difficult if not impossible for anyone in a dire financial situation to handle. When trying to make a large purchase such as a home, a car or a piece of furniture, the financing that would be available to someone with a good credit score is not available in the case of bad credit. A bad credit score can prevent someone who is trying to rent a flat from being able to do so. If a homeowner goes through a financial downturn even after their home is purchased, a downturn which negatively effects their credit score, refinancing their mortgage becomes nearly impossible. When moving into a new home or flat, many basic utility companies will not even consider activating service for someone who has a bad credit history, as their risk of not being paid is seen as high- they will instead charge these individuals a security deposit of several hundred dollars which is not able to be recouped. Perhaps the most major day to day effect of a bad credit score is the fact that it leaves a consumer unable to open a bank account. This can prevent them from safely saving and storing money and make them unable to cash personal checks, a hardship which can quickly become frustrating and detrimental to their financial life.
How Can Bad Credit Be Improved?
There are several ways that a consumer with bad credit can take control of their financial situation and improve their credit score. The first and most obvious is to find out about any debts that may remain unpaid and make good on them. By removing these debts from the credit history, the score will rise. If this seems impossible to do individually, agencies exist which can help with debt consolidation. They will negotiate the owed amount to each company or entity down to a reasonable fee and then have you pay them in a lump sum each month so that they can pay the companies. This makes the process less complicated. Once steps like these are taken, rebuilding credit with the use of a secure credit card or credit restoration loan that is carefully monitored and paid in full and on time every time will help to raise the credit score.
How Can Future Credit Indiscretions Be Avoided?
For those who have suffered repercussions of bad credit in the past, it is important to be aware of how the issues happened and how they can be prevented. If the issue was one of carelessness, formulating a calendar for paying bills or setting up automatic withdrawals can prevent late or missed payments. If overspending led to a lack of money to pay bills, it is important for the individual to learn to curb their spending habits and maintain a reasonable budget that will allow their expenses to be met. By remembering the mistakes of the past and considering the benefits a good credit score will have in the future, an individual can take the steps necessary to prevent going down the rocky road of bad credit ever again.
InfoAviator Publishing is a organization that is committed to help consumers deal with bad credit that are living in England, Scotland, Wales and Northern Ireland.