The Pitfalls of Bad Credit

If you are trying to recover from lessons learned because you didn’t properly budget your expenses and you find yourself with less than ideal credit, you are probably well aware of the hardships that come with being considered a high credit risk.

Lenders decide to whom they will extend credit based on credit scores. They have very clear cut guidelines that must be met in order to qualify for certain loans. When it comes down to it, it doesn’t matter if you are only a few points shy of their cutoff. If you don’t meet the criterion they feel is necessary to extend you credit, you will find that getting a loan will prove very difficult. Having bad credit may not prevent you from getting a loan altogether, but you may find the loans you do get approved for have much higher interest rates and more restrictive terms. In the long run, a high-risk loan can end up costing you considerably more than you ever anticipated. 

Bad credit can also keep you from carrying out the necessities of life. If you are looking to rent an apartment or even change jobs, most potential employers will do a check of your credit to decide if you show financial responsibility. It is not an uncommon school of thought to consider someone with good credit to be responsible and have a good work ethic. On the other hand, having poor credit suggests the opposite. 

Don’t let your less-than-desirable credit discourage you from thinking it cannot be repaired. There are companies that specialize in bad credit loans. There are steps that can be taken to repair your credit.

Corrective Actions

In order to fix anything, you have to first identify the problem. The same premise goes for your credit. To have an idea of where you went wrong, get a copy of your credit report and see exactly what potential lenders and employers are looking at. Is the information correct? There is always the opportunity for human error to rear its ugly face. Make sure the information contained within your credit report is accurate. If you find anything that is reported incorrectly, be sure to contact the credit bureau and have those errors corrected. 

By doing a credit check-up, you can see your credit usage levels in black and white. If you have an extensive utilization, work to get balances paid off and tip the scales back in your favor. Bad credit doesn’t have to be a life-long hindrance; you can take a pragmatic approach to make the repairs to your credit you so desperately need. 

When reviewing your credit report, pay attention to the details contained therein. Are you making at least the minimum payments by the allocated due dates? If untimely payments are what’s holding you back, set up direct payments with your bank for the minimum due and if you have the ability to pay more, adjust accordingly. Having consistent, on-time payments accounts for just more than one-third of your credit score. 

Another factor to consider that negatively impacts your credit score is the type of accounts you have. A well-balanced mix of installment loans, as well as revolving credit lines, is the key to financial stability. It shows lenders you can handle different types of credit and in turn, increases your credit score. 

Bottom Line

The bottom line when it comes to credit is to be aware of what is on your report, fixing any errors, make consistent, on-time payments and have a good mix of lines of credit.

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