Bad credit? View your Loan options

Ishitha
Ishitha
Jul 10, 2017 · 4 min read

When we swipe that credit card or apply for a loan and use it for personal expenses, we never think of reliability and integrity. The thought of a new car or a new gadget and how you are going to use them. Creditors have nothing to do with your dreams, and they want to recover their money back. Before taking a credit decision, remember with a credit you are always attached to a risk called “Credit Risk.” Lenders do not like borrowers with elevated credit risk for obvious reasons.

For assessing your Credit risk lenders rely on a three-digit credit score. A Credit report is a comprehensive look at the recent financial history. The report includes data on past payments, foreclosures, delinquencies, credit utilization and more. Most credit scores follow a scale ranging from 300–900. When talking about Credit Score, there is a thin dividing line between bad credit and fair credit. All lenders draw their lines differently, but more or less the rating falls into the following category:

• Excellent Score- 720 and above

• Good Score- 690–719

• Fair Score- 630–689

• Bad Score- 300–629

Credit is just a tool and what makes the score good or bad depends completely on an individual. If you have had a bad score and working towards getting it right then, you will represent victory. It obviously takes time and is not immediate.

What to Expect Out of a Bad Credit?

If the Credit Score is below 600, lenders might either outright reject your loan or give you a tempting offer. Some banks cater only to people with a Good and Excellent score, so even someone with a score of 635 may be rejected. The repercussions being you would not qualify for a 0% interest rate credit card and your personal loans if sanctioned might come with a high-interest rate. You might also have to pay more for home and auto insurance. Good news it, Credit scores are only a snapshot of credit report at that moment, and they change with a good credit behaviour.

Getting Approval for a loan can be difficult

Getting approval for a loan is difficult, but if you get one, it is a victory. The repercussion is that your loan comes with a high-interest rate or restrictive terms and conditions. You might be asked to make a higher down payment than you would if you had a good score. An interest rate with a single digit difference, for instance, can also add thousands to the total cost of the loan. The same structure also applies to auto loans, personal loans, and credit cards.

How to Improve Your Credit?

It usually takes longer to turn a bad credit to good, and it is also important to know where to focus the efforts. The biggest factors determining a credit score by far are on-time payments and credit utilization. Which also means that you need a track record, the longer the track record, the better chances of improving the credit. The golden rule is that your credit card balances should stay below 30% of the overall limit. In such cases even if one of the bill payment is late, you won’t see a significant change in the balances and the score.

There are a few credit products that help in building the score, one of them is a secured credit card. In this type of card, you make an initial deposit which becomes your credit limit. You are then allowed to use the card like a regular credit card, with the precaution of making timely payments and keeping the balance low. Remember it takes at least six months of on-time payments to improve the credit score.

Sometimes people are unaware of the bad credit score and so make little to no effort to improve it. It is essential to keep a close eye on your credit every six months to know where you stand. Especially when you plan to buy a home, a car or apply for a credit card. Checking your own credit score will not affect your credit rating in any way, but it will help you dispute errors on the credit report. Checking your score regularly will also assist in paying down excessively high debts and limiting the new inquiries unless you have an excellent rating.

All in all, a bad Credit does not mean you are bad at handling your finances. It means that you have put the unexpected bill on the credit card and so have trouble paying them. It can also mean that there was a sudden emergency in the family like a loss of job, medical emergency or death which needed immediate funds and thus you had to miss a payment. Whatever, the case might be if the score is not helping you to get credit then it is time to turn the bad credit into one that makes applying for credit a lot easier.

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