Many people lack a basic understanding of credit scores and how they can impact your life. It plays a significant role in a person’s ability to borrow and take out a loan. A bad credit score will limit your borrowing ability, and potential lenders will see you as a risk.
A bad credit score situation can be daunting and may push you further and further into debt. Experiencing a bad credit score does not mean you are a bad borrower, and you can improve your score. Are there any secured loans for bad credit? Here is everything that you need to know about a bad credit score. Make sure to read till the end.
What is a bad credit score?
To understand what a bad credit score is, let us look at how your credit score is. A credit score is a number prepared based on your credit report. It is proof of your reliability as a borrower, and this number makes a difference when you have to take out a loan. It is between 0 to 1200, depending on the credit reporting agency. The three primary agencies in Australia are Equifax, Experian, and Ilion. In each of these agencies, different credit scores and calculation methods are used.
Now, what is a bad credit score? The score is considered poor, depending on the agency you go through. But generally, it is below 550. To understand a bad credit score better, it is significant to consider the factors for making up this number.
How is your credit score made?
The lender calculates the credit number on varied factors depending on the credit reporting agency. Some of the things that are common for all are:
Repayment History A missed or a late repayment will be marked as a listing on your credit score and will bring it down. Similarly, timely repayments will get reflected on your credit score as well.
Defaults, bankruptcy, court judgment
Failure in repayment of debt will be present on your credit file. The future fast business loan lenders will be made aware of this fact, and such listings will stay on your file for up to five years.
Your file marks each credit application that you make. Try and not make multiple loan enquiries within a short period of time as this will bring down your credit score.
Owing a lot of money will harm your credit score. How much credit you own also affects this number and is referred to as the credit utilization ratio. Using most credit means you are stretched, and this lowers your score.
Length of credit history
Your credit score will get better with a long credit history and taking more different types of loans. It makes your lending ability positive.
A credit mix is best for your score. Taking various types of loans like long-term loans, bridging finance, credit cards, and more will positively impact your credit score.
Will your bad credit score go away?
The question “Will my bad credit score go away?” is quite common among borrowers. The question may seem daunting, but the answer is simple- yes. Poor credit goes away, and you can work towards achieving it. Change your financial habits and pay off loans on time. It will help you get rid of your bad credit. It will not go away on its own. You will have to work hard to achieve it.
The time you need to change your score, as it will vary depending on the listings you have on your credit score. However, you can start making some positive changes right away. Some things that you can do to improve your score are:
Paying bills on time
Timely repayments every single time will impact your credit score positively. It is the most critical thing to achieve.
Refrain from taking more credit
You must not take more credit if you are already in debt. Frequent loan queries can lower your credit score, so limit the enqiries you make.
Pay off your loans
Set a schedule to ensure you pay off loans on time. Your credit report will become better as the money you owe reduces.
Changing your score will take time, and waiting is the most significant thing that you have to do. It can take up to 5 years for defaults to be removed from your credit file.
Another thing you can try to improve your credit score is approaching a credit repair company. They can help you improve your score in 30 days. Make sure to go to a repudiated firm.
Taking credit with a bad score
Is it possible to take a new loan before improving your credit score? Thankfully, there are several secured loans for bad credit available. Irrespective of your score, you can find lenders to assist you provided you can offer security. Instead of the score, they consider other aspects in judging your reliability as a borrower. One factor lenders will consider is your bank statements to ensure that you can repay.
Do not worry if you find yourself in a situation of bad credit. Instead, change your financial habits and work towards improving your score. Although it might seem like hard work and a time-consuming task, it will be helpful for your financial stability.