In a highly commercialised and finance-focused world, something like credit would seem like a big deal. To be fair, there is a lot that is riding on this but it may not be the worst thing to have a bad credit score. But first what is credit?
In very basic terms, credit is the level of trust businesses and financial institutes are willing to give that you will actually repay the money you are borrowing. You can have bad credit or a good credit score. And your future financial options may depend on your credit score.
What is bad credit?
In the real world, people try very hard to avoid bad credit but with the bills, taxes and the rest, it can be a little hard to make repayments. So if you haven’t been repaying your loans or credit, then chances are your credit score is on the negative end of the scale.
This will cause inability to get approval for credit the next time you apply for one or limit your options of getting credit. In either case, people normally assume that a bad credit score could be the end but that is not true. There is a way to get out of it and it’s not rocket science.
Ways to boost your credit score
Your credit score is kept under check and recorded in credit bureaus or companies that operate as credit reporting agencies. They compile your data, track your credit history and create a credit report.
Based on your history of repayments and bad debts, they will give you a credit score. Bad credit is usually a result of a bunch of unfortunate repayment default cases that occur in a short period of time. Credit score lies between the range 300 and 850 with the prior being the lowest figure and the latter being higher.
What most assume is that bad credit can be the end of your liberty and the beginning of depression. The assumption is wrong. Yes, it does induce a struggle with spending and debt but it does not limit life to it.
Life with bad credit is pretty manageable but you will need to learn how to manage. If you have mortgage payments or bills that are due tomorrow, then take care of them first and the rest can wait. You do not want to accumulate more debt over what is already accrued.
People in debt or who has bad credit often reduce their own self-worth down to the debt too, which is entirely wrong. Mindset and attitude will take you places if you want to survive this. Believe that you can get out of this and you will.
What happens when applying for a loan?
If you are applying for a loan and are concerned about your score status, then what you need to work on is a steady stream of income. You could have a good credit score but if you don’t have a steady income or always missing payments, then the good credit score won’t do you much good.
If you can prove to the lender that you have a steady income coming in, you have been meeting payments and your creditors are in much better mood, then securing a loan won’t be hard work. You need to keep this up for at least six months to a year. Because once the debt gets older, it doesn’t make much difference to the lenders.
Another thing you can do, which may be more on the inconvenient side, is move into a smaller or cheaper apartment. You only have to do this temporarily util your financial situation improves.
You can also put off any big purchases for the time being like purchasing a car or something along those lines. This usually accounts for irresponsible spending and as long as you got this under control, you can do well with debt management.
Along with irresponsible spending, things like applying for a new credit card or a store credit card for that matter would complicate your debt situation. Avoid that util you have started to pay your creditors while maintaining your steady stream of income.
Getting your debt under control
You should also look into debt arrangements such as bad credit debt consolidation loans or bad debt loans. A professional will be provide a more suitable suggestion.
Once you have your financial situation under control, what you need to work on next is to keep the situation that way. To make sure that you won’t find yourself in the same situation again, when you have creditors at you, bills piled up and nothing to pay them with.
Banks and lenders often see your financial situation with dollar signs in their eyes. The more you owe, the higher the interest rates you will get.
But you need to keep your head straight and figure out if you really do need another loan and if you can do without getting it. Once you have begun to deal with it in the correct manner, even on a small scale, you will be looking at much better days.
It is commonly assumed that bad credit can have a disastrous impact on your financial health. Despite all the facts, this statement is not true; it is quite possible to improve your credit rating and reverse the impact of the current bad credit.
Steven Rooyen is a husband, father, senior debt advisor and a financial consultant at Sort My Debt. With over a decade of experience in different financial fields, Steven has helped many people resolve their debt problems and provide debt solutions without filing for bankruptcy. While not doing that, you can find him reading books and roaming with friends.