Meaning Of Bad Credit. Bad credit simply describes a record of your past failures to keep up with payments on your credit agreements. This results in the inability to get approved for new credit. Bad credit shows potential lenders how irresponsible you have been with your financial obligations. Your credit issuer is obligated to report your financial behavior to the credit bureaus. Your credit report also takes into account the public. Records such as any state or federal tax liens, bankruptcies, or legal judgments against you. Although you’ll see the records and history for all of yours. Actual credit accounts on your credit report, you won’t find any credit score on your credit report.
Each credit bureau calculates a FICO score based on your credit information. Different companies such as auto lenders, mortgage lenders, and credit card companies look at potential borrowers differently according to their needs. In order to accommodate this, dozens of FICO score variations and calculations exist. Credit scores range from 300 to 850, with 650-670 being considered the low end of a “good” credit score and lower scores indicating the lower end.
Your payment activities account for 35% of your credit score. Thus, having a default on your credit report can undoubtedly result in lower credit scores. If you’ve had accounts sent to a collection agency, such as unpaid medical bills, the collection agency could report your delinquency to the credit bureaus.
If you typically stay on top of your finances,
you may have a decent idea of where your credit score falls. Find out your FICO credit score and get a copy of the actual information reported on your credit record. You might find to discover mistakes or omissions. It will also help you figure out what’s hurting your credit score. You can get one free copy of your credit report each year from each of the three credit bureaus, TransUnion, Equifax, and Experian.
The Fallout from Bad Credit
With bad credit, lenders are less willing to lend to you because of the increased probability that you could fall behind on your payments. You might find all your applications for credit denied, or if you do get approved, you’ll likely receive a much higher interest rate than borrowers who have good credit scores.
The increased interest rate is a lender’s way of compensating themselves for the risk of loaning money to you. Bad credit affects more than just your credit card and loan approval but also the interest rate. Some insurance companies even consider it when quoting you an insurance rate. Utility and cell phone providers often charge a security deposit for applicants with poor credit. Your landlords may even require a higher security deposit if you have bad credit, or they may turn you down for a lease or rental agreement altogether.
Take Steps to Repair Your Bad Credit
Bad credit doesn’t have to be a permanent state. You can take steps to improve your score over time. First, focus on removing negative information from your credit report either by using a credit report dispute or a credible credit repair technique.
Also, the impact of some negative marks on your report lessens over time, so sometimes all you have to do is wait things out. Focus on adding positive information by adding new accounts and consistently paying them on time.
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