Bad Credit Basics

Credit scores refer to a number generated by a formula based on the data of your credit report. With the help of credit score, the lenders can quickly analyze the credit risks.

The higher credit score you have, the less prone you are to default.

There are different scales for different credit scores, however, in most cases the numbers can range from about 400 to 900. Thus, 700-800 credit score indicates you are a good risk, while 300 and lower means otherwise.

Lending companies use different ways for determining what a bad credit score is. In most cases scores in 500s and low 600s place people in the higher risk group. This implies you can get the loan approval at higher rates and additional fees. The credit score in this span is considered a bad one.

Bad Credit Consequences

The bad credit score is not the worst thing in the world.

Bad credit means you may have troubles when applying for credit.

People with bad credit will be charged additional fees and will get limited access to funds whether it’s a personal loan, credit card, mortgage or auto loan.

Lenders try to protect their business, so if your credit score is poor the history detects there’s a huge risk you won’t manage to pay the debt. Getting approval will be difficult because of the bad credit score.

And if you find a lender to approve your loan application that will definitely be with tough terms; you will have to pay a rather high premium so that to borrow the cash. The repayment installments will be largely dedicated to the rates of interest and this will lead to a huge down-payment. To cut the long story short, bad credit history makes it extremely difficult to get access to loan money and wastes quite a fortune.

Bad Credit – Ways of Improvement

First and foremost, you need to change the borrowing practices. The thing is that you shall prove to lenders you have positive loan habits and can maintain them for a long time. If late payments or default happened before, it’s high time to change it for better and cope with the problem. If you have spent your credit cards to the max, you should pay down the balances to the level of “credit utilization” of 30%.

Every person has his/her own credit picture, so you should have a look at your credit report and credit score. To fix your score first you need to understand what it is.

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