No individual wishes to have a bad credit, but many end up have one. A credit history makes it clear how well a person uses and repays his credit. So if a person with bad requires to apply for a loan, then there things that must be considered.
What Is A Bad Credit?
It usually defines a record of the past failures in keeping up with the payment on credit agreements. A bad credit means that you have not repaid your loan instalment or credit on the scheduled time or have not even at least paid them ever. A credit card report also considers public records like a state or federal tax liens, bankruptcy and legal judgement against an individual. Companies known as credit reporting agency or bureaus fetch a person’s credit score and collate it into a report. Each of the agencies maintains their own individual credit report. Thus a person’s credit history and credit scores can vary among different agencies as a result of any error or deletion of information. A person will be able to view records as well as history for his each and every actual credit account on his credit report. But he will not be able to notice any credit score on the report.
What Happens Due To Bad Credit?
If you have a bad credit, lenders will less likely lend you money. It is because the probability of irregular or non-payment on a new loan or credit card is increased. You can see that all the applications for a new credit card or loan is getting rejected. If you still get an approval, your rate of interest for the loan or credit card will be much higher than that of those who have a good credit score. This increased rate of interest is a way by which the lenders compensate themselves if they take the risk of lending money to someone with a bad credit. A bad credit will not only affect your credit card or loan approval or the approved loan’s rate of interest. There are few insurance companies who look at an individual’s credit score when they quote any insurance rate. Providers of mobile phones and utility often demand security deposit from those applicants who have a bad credit. If you have a bad credit, then a high amount of security deposit can be demanded by landlords or your lease or rental agreement can also be rejected.
How Costly Are Loans With Bad Credit?
Although an individual can avail a personal loan if he has a bad credit. But he needs to be aware that a high rate of interest will be charged. For instance; if your car stops to work and you require a personal loan of amount $2500 for the repair of your car. If you have a very good credit score, suppose base FICO score is 740, then you may get approval of a 3 year personal loan at a rate of interest 9.33%. Your monthly repayments will be of $79.88. At this rate, you will require to repay an interest of $375.82 overall during the period of the loan. But if you have a poor credit score, i.e.: Base FICO score less than 580, you may get approved for a loan and rate of interest may be 35.89%. So your monthly repayment will come to $114.35 and you have to pay a total interest of $1616.70 during the 3-year loan period. Thus if you have a bad credit then for this 3 year personal loan amount of $2500 you will have to pay an additional $1240.88
Will A Bad Credit Affect You Forever?
You should be aware that a bad credit is not anything permanent. Late payments, bankruptcy and foreclosures get off a credit report after 7-10 years. So even if a person files for bankruptcy, it is possible that you can work towards improving your credit. You can take few steps to improve it. Firstly you should check your credit report. According to a recent survey, almost 25% of the citizens in U.S. found some errors on their credit reports that can hugely affect their credit rating. So find such error and dispute them successfully so that they get removed from your reports. It is a simple thing that can be done by a person to improve his credit score. Secondly become aware of what are the factors that are included to calculate a credit score. If work to improve all these factors, your general credit report might improve and it will include your credit history and scores. For instance, ensuring you make timely payments and pay your credit card debts can help a lot to improve your credit score.
It can be very frustrating when you try to secure a loan if you have a bad credit. Search genuine lenders who will lend you money. Moreover availing a personal loan with a bad credit score and making timely repayments will aid you to get rid of your bad credit score.