We hear the word ‘credit’ thrown around quite a lot nowadays. Whether it is in the form of an achievement or a compliment, or it is referring to a card or type of payment, the basic concept of ‘credit’ is one that many of us understand and live by. However, what exactly is credit?
‘Credit’ essentially means that an unwritten contract is formed that means a customer is able to obtain goods or services before payment on the trust that full payment will be made in the future. It can be any amount, although for far larger sums, a guarantor is used in the event that the initial applicant fails to make the payment. When paying for things in credit, the general assumption is that you will pay for these things in full at a later date. It is not a way of getting ‘free’ things.
When you apply for larger loans, you will receive a credit score – which is kept secret – from the company you are hoping to lend from. They will score you based on any previous transactions you have made and the likelihood of your ability to repay the loan based on previous repayments. If you have ‘bad credit’ on your previous loans, you may be refused the loan.
In truth, there is no such thing as a universal credit ‘score’. Every company or lender will assess you in a different way. However if you have bad credit history, this is likely to score against you when they are assessing your situation. If you are unsure as to whether or not this bad credit is valid, you should make sure to check your credit history for errors before applying again, otherwise you may experience difficulty in getting loans etc.
Bad Credit; What is it and how is it measured?
Essentially, nobody wants to lend out money to someone who is unlikely to pay it back. If you have a history of late payments, bounced checks, changing bank accounts etc. any application you make is bound to be subject to some criticism. This is where people tend to get into trouble as they can assume that they can apply for several loans without having to repay them all, leaving them in a worse situation financially than when they started. Plus with the high interest repayment rates on many loans, this can be a real slippery slope if you don’t have a good grasp of the situation at hand.
‘Bad Credit’ or a ‘Bad Credit History’ is a way of showing your future behaviour when paying back certain loans. If you have a bad history, lenders are less likely to approve loans for you if you have a history of not making repayments. However although ‘bad credit’ is often the result of having a bad repayment history (or in some cases, no repayment history at all) it can come as a result of having ‘no credit history’. If loan companies don’t know anything about you, you are of a higher risk than someone with an extensive credit history as you are considered ‘unpredictable’ and therefore a danger to their company profit margins.
How Do I Fix Bad credit?
Sometimes it is that simple! Making payments in a bid to reduce your current debt goes a long way into repairing your credit score, making it more likely for you to be able to take out new loans. In all honesty, it is never recommended to take out more than you can handle and it can be easy to go overboard, so concentrating on the loans you currently have and attempting to reduce your current debt is one of the best ways you can help your credit score. By showing the lending companies that you are a trustworthy person who pays their debts, they are more likely to trust you with their money.
You might have all intention of paying back your debts, but life and organisation keeps getting in the way. By setting up reminders or a payment plan that automatically takes the money from your account, this helps keep up a good repayment schedule. If you’re not too good at organising yourself, this would be a recommended method as it takes some of the stress off of you and really helps to improve your score.
Before doing anything else, you will want to check your credit report to see where you have a bad credit history. By viewing the problem at its lowest level, you can make small lifestyle adjustments to help repay the loan and get rid of that bad credit. In some cases the bad history may just be a mistake, so checking your credit report is essential. There are a number of places where you can request a free credit report, you just need to look around online a bit.
At the end of the day, if you want to consider more loans and you don’t want to have any trouble in getting approval for those loans, keeping tabs on your credit history and making sure you don’t have bad credit is essential. It can be very easy to get caught up in making applications for new loans instead of dealing with the older ones, but by making attempts to repair your current bad credit, you are more likely to receive success with future applications and you can take newfound repayment experience into any future loans so that your credit history remains positive.
Article provided by technology-led credit company Solution Loans; specialists in providing expert advice to help you to choose the most suitable type of finance options that are best suited to your needs.