Bad Credit Rating – 5 Ultimate Factors
Bad credit rating is a credit score that puts loan vendors in a hesitation to approve the loan applications. People with this credit score range cannot enjoy credit benefits to the fullest. According to Experian’s statistical data, more than 16% of the credit users fall under bad credit score.
Ever since the global financial crisis first reared its head towards the common men in 2008, financial institutions have put in place a greater number of credit policies and stringent background checks to ensure that the probability of coming across bad debt is minimized. Now, be it a house loan, car finance, or even an application for a rented apartment, a credit score can make all the difference in the world. Yet, a large number of people are still at a loss because they fail to know how credit scores are calculated. Therefore, knowingly or unknowingly, these people make mistakes that push their credit scores down.
Importance of Credit Scores
A person’s creditworthiness is gauged using their credit score. This parameter is used by loan providers to assess a borrower’s repayment capacity. These credit scores are crucial since they are the determining factor in the loan approval procedure. Experian, TransUnion, and Equifax, three of the largest credit agencies, assess applicants’ credit eligibility based on their past behavior. They make use of well-known scoring methods like the Vantage and FICO models.
Effects of Bad Credit Rating
Having bad credit makes it challenging to get a loan approved. Even though there are financing alternatives, they come with high premiums or interest rates. Because secured credit cards and loans place a greater focus on collateral than on credit ratings, users should use them.
5 Factors of Bad Credit Rating
Here are 5 of the most common factors that push affects your credit score:
Typically, your credit scores are not affected much if you hold up your debt payments for a few days. However, things start to get serious when the duration of the delay reaches the 30, 60, or 90-day mark. This form of delay is often referred to as ‘delinquency’. Once a credit scoring company reports your delinquent credit behavior to the credit bureaus, your score can take a huge dip and drop by 60 to 100 points.
What’s worse is that the higher your credit score prior to the delinquency, the higher the damage of the delinquency. If for some reason you cannot pay your debt at all, you will be faced with either a charge-off, a judgment, foreclosure, or a collection amount (meaning that the delinquency will be a part of your credit report for seven long years).
Although going bankrupt sounds like the end of the world, it can be cured. For times when you simply cannot take the debt anymore, filing for bankruptcy is the only option. Once you file for bankruptcy, the judge can either give you a clean slate or alter your repayment plan. Whatever the decision may be, bankruptcy will stay on your credit report for anywhere between 7 to 10 years and can result in a credit score loss of up to 200 points. Fortunately, though, the effects of bankruptcy can be repaired fairly quickly once you start rebuilding your credit.
Pretty self-explanatory, loan cosigning refers to you jointly taking a loan with someone else or on behalf of that person. As many financial experts will tell you, loan cosigning is perhaps one of the worst things that you can do to your credit score. When you cosign a loan for someone, you are letting that person play with your credit score. Therefore, loan cosigning must be avoided at all costs as the results can be damaging.
A Large Number of Credit Card Applications:
Credit card usage is common and almost everyone seems to own a few forms of credit cards. However, too many credit card applications can eventually end up damaging your credit score. Each time you apply for a new credit card, an inquiry is conducted on your credit rating. Each inquiry then results in a credit score dip of 2 points. Fairly inconspicuous sounding at first, too many credit card applications can quickly shoot up the credit score damage. For instance, if you apply for 10 credit cards in a short span of time, your credit score can take a dip of 20 points, which is fairly large damage.
Failing to Report Inaccuracies:
Mistakes are what make us human, and the same can be said for credit reports. There are a number of reports that go unreported on credit ratings and these range from credit identity theft to simple numerical mistakes. Therefore, in order to avoid unnecessary dips in your credit score, always keep a check on your credit rating and report discrepancies to the respected institutions.
Credit Repair Services To Fix Bad Credit Rating
Cheap credit repair services like The Credit Pros will help consumers come out of these common errors. They monitor the credit records and identify errors. They also proceed with disputing the errors on behalf of their customers. Check out their prices and make use of this quality service.
Frequently Asked Questions
1.What is a bad credit rating?
Bad credit rating is the standard of credit. The credit scale categorizes credit scores into 5 ranges. Among them, credit scores between 500 to 600 are considered bad credit scores.
2. How can I boost my credit score?
The most important hack to boost your credit score is by paying your debts and monthly installments on time. Consistently maintaining this practice will help people boost their credit scores.
3. What are the ranges of credit scores?
The credit score ranges from 300 to 900. They are categorized as poor, fair, good, very good, and excellent as per the score ranges. These categories denote the creditworthiness of the consumers.
This article detailed the importance of credit scores. If you are one among those credit consumers struggling to boost your credit scores, first you have to know what are the reasons or scenarios that can put you in bad credit rating. Focusing on some regular practices like on-time payments can help you rebuild your credit. For more information, call us at 1-800 411-3050.