Bad credit is a term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. Bad Credit can result in being denied credit.
Whether non-payment of an account is willful or due to financial hardship, the result can be the same, a negative rating which will result in a low credit score. However, lenders are more willing to work with individuals if the person contacts the lender to let them know they are having problems meeting their commitment to pay.
Credit scores are used as a statistical method of assessing an applicant’s credit worthiness. An applicant’s credit card history; amount of outstanding debt; the type of credit used; negative information such as bankruptcies or late payments; collection accounts and judgments; too little credit history, and too many credit lines with the maximum amount borrowed are all included in credit-scoring models to determine the credit score.
Raising your credit score is possible. It is a well known fact that lenders will give people with higher credit scores lower interest rates on mortgages, car loans, and credit cards. If your credit score falls too low just getting loans and credit cards is difficult.
Here are five things that you can use to raise credit score.
1. Correct obvious mistakes. Your credit score is what shows up in your credit report. Review your reports from all three credit bureaus – Experian, Trans Union and Equifax, for accuracy once a year as well as several months before applying for a loan. Changing a mistake on your report can take 30 days to three months, or more.
2. Pay Your Bills On Time. Your payment history makes up 35% of your total credit score. Your recent payment history will carry much more weight than what happened five years ago. Missing just one payment on anything can lower your credit score 50 to 100 points. Paying the bills on time will go a long way to repairing your credit score.
3. Reduce your credit card balances. A heavily weighted factor in your FICO score is how much money you owe on your credit cards relative to your total credit limit. Generally, it is good to keep your balances well below your limits. It sound illogical but a bank would rather give you more credit when you are using 25% of the credit you already have in place.
4. Don’t Close Old Accounts. In the past people were told to close old accounts they weren’t using. But with today’s current scoring methods that could actually hurt your credit score. Closing old or paid off credit accounts lowers the total credit available to you and makes any balances you have appear larger in credit score calculations. Just like #3 above, those unused available credits are keeping you debt to credit ratio lower.
5. Avoid Bankruptcy. Bankruptcy is the single worst thing you can do to your credit score. Bankruptcy will lower your credit score by 200 points or more and is very difficult to come back from. A bankruptcy on your credit record remains for up to 10 years.
It is better to get credit counseling to help you with your bills and avoid bankruptcy at all costs. By getting credit counseling instead of declaring bankruptcy you can raise credit score over a much shorter period, and the agency may be able to lower your interest rates to make the paybacks faster and easier. Many agencies have also had success getting portions of your debt forgiven.
