A bad credit is a record of your past failures to make payments on time for loan and bill payments. A person with this credit finds it difficult to get a loan.
An individual who has applied for a credit card or borrowed money has a credit file in either one or probably more of the three bureaus. All the transactions and events that the individual has had any time in the past, like the number of loans rejected or approved, loan applications, credit card loans, credit card rejections and approvals, foreclosures and more are recorded in the report.
This score or the report is taken into consideration by the lender when you apply for a loan.
Causes of Bad Credit
The key factors of bad credit are listed below.
1. Late Payments
An individual’s history of payment works out to nearly 35% of the credit score. In case you have been making late payments for more than a month, the creditor reports this to the credit bureau. This information is then recorded in the report.
Constant late payments made to credit card companies, utility providers and lenders affect the credit score.
An individual or even a company has to file for bankruptcy when they are unable to pay off their debts. This enables them to receive protection that is legal. This bankruptcy is extreme and affects the credit score badly.
This information is recorded in the report and is there for a period of seven years. Most of the lenders avoid lending to borrowers who have filed for bankruptcy as these cases are complex.
3. Collection Accounts
Third parties are used for collecting debts when a lender is unable to recover the dues. Most of the creditors sell or hire the delinquent debt to the agencies of debt collection either before or even after charging off the account.
These delinquent accounts are captured in the reports. Till the time this information is repaired it is difficult for a borrower to get any loans.
4. Charge-off the Account
The creditor charges off the account if this is delinquent for a long period of time. This means, the creditor has given up on pressurizing the borrower to make the required payments. This means the credit report has a black mark. With a charge-off account, the holder of the account is unable to make any purchases with this specific account.
The borrower still owes money to the lender when a charge-off occurs.
There are specific ways to get the required loan even when you have bad credit.
- You can try for a loan against assets.
- Try loans with secured Credit Cards
- Try talking to your employer for an advance in salary
- Try taking a loan from friends and family
- Take the help of a co-applicant
It is advisable not to take a loan if you are not facing an emergency. You can wait and work towards improving your credit score and go through the ‘proper’ channel for the loan.