A guide to help you understand the Bad Credit stigma
According to a survey, a whopping 5 million+ consumer has been rejected when applying for a credit. This data is for the last 12 months and every month this number inflates to reach its new high.
And among the reasons for denial, bad credit is the 2nd most prominent reason for the banks to decline a loan application. People with bad credit face challenges in getting their loans approved. So, I decided to give my readers an insight into how the things are with bad credit and what can be done to improve your bad credit history.
What is a credit score?
A credit score is a numerical representation of your financial habit.
If you have a good credit score it means that your spending and lending habit is under control and banks can trust you with their money. But if you are scoring low on bad credit then banks are simply not going to entertain your application.
Who decides the credit score?
The credit reports are generated by the two biggest credit reference agencies worldwide, that are Experian and Equifax. These agencies collect information from various sources and provide consumer credit information on individual consumers for a variety of uses. The organisations provide information on individuals’ borrowing and bill-paying habits.
How do they decide the score?
Your credit score is computed on the basis of following reasons:
- Payment History – makes up 32-35% of your overall credit score
- The amount of Debt – makes up 30% of your overall credit score.
- Length of Credit History and Types of Credit– makes up 25% of your overall credit score
- New Credit– makes up 10% of your overall credit score
An example of a credit score card:
For online loans, a score of 712 is considered average. The more you come closer to green the more options of credit will get opened at lower rates.
Why should I care?
Simply for the following reasons:
- To avoid rejection of the loan application
- Borrowing loan at low interest rate
- Increase your ability to get approved for higher limits
- Easier approval for rental houses and apartments
- Low-interest rates on credit cards
Simple tips on how to improve your credit score:
- Make sure you are on the electoral roll
- Pay your bills on time; even a couple of days late can make a difference
- Check your credit record regularly to ensure there are no incorrect details and correct any errors.
- Close old credit card account and cancel old direct debits
- Do not take out more than two forms of credit within a six-month period
- Look for specialised credit providing organisation like Bad Credit History, to help you build and improve your credit score.