What It Means to Have Bad Credit and How You Can Fix It

When talking about credit we usually fall under the range of good credit, average credit or bad credit. Good credit is very attractive to lenders while bad credit is quite the opposite. The credit scoring system usually starts at 300, which is the lowest figure, ranging to 850, which is the highest score. A score of 750-850 is deemed very good, 700-749 is deemed good, 650- 700 is deemed fair while a score of 300 to 649 is considered unfavorable. 

Bad credit is defined as a record of past failures in an attempt to keep up with one’s credit agreements resulting in an inability to gain approval from lenders for new credit. When you have bad credit, it just means that you have not paid your obligations or credit on time if not at all. Your credit report also accounts for public records including legal judgments, bankruptcies, federal tax or state laws against you. 

If you have a credit score of less than 600, lenders will see you as an unattractive customer to them and most of them will reject you immediately. Lenders usually decide about the type of risks they are willing to absorb even as they extend credit to customers. Some lenders will only deal with people who have good credit meaning someone with a fair credit score may not even be considered. If you have bad credit and a lender decides to give you credit, you will probably end up paying more interest as opposed to an individual with a higher credit score. 

On the other hand, you will not be eligible for 0% interest cards with bad credit which includes personal loans with single-digit interest rates. You will also be looking at sub-prime interest rates if you want to finance a house or a car. This could find you paying utility deposits that people with good credit do not have to pay. 

Credit bureaus are responsible for collecting your credit history and compiling it into a credit report. Individual agencies usually maintain their own credit reports meaning an individual’s credit history and reports could differ among them because of omitted information or errors. Even though a credit report usually contains one’s credit history and records for credit account purposes, it does not have the credit score. If you have loan defaults, late payments, or negative records on your credit report, this can lower your credit scores and if you have accounts that have been sent to collection agencies including unpaid medical bills, this can be reported to credit bureaus and go on your report. 

The good thing is that bad credit is not permanent and there are steps you can take to improve your score with time. You can remove any negative information on your credit report using a legitimate credit repair technique or you can dispute any incorrect information on your credit report. You can also add beneficial information to your credit report by adding new accounts to the same and paying them on time consistently.

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