Is a Bad Credit Score a Death Sentence for My Finances?
You’re in desperate need of a loan. You’ve gone to a creditor who you were sure would be able to hook you up with the money you need.
Maybe you even went to your bank, who know full well how much in need of some cash you are. So they ran a credit report, whatever that is. And through this credit report, they found that you have “bad credit” and refused to lend you the money.
So perhaps this situation has got you feeling a little despondent. Like your finances are irreparably broken, somehow. But maybe you’re looking at it wrong. The fact is that a bad credit score is not a death sentence for your finances.
I realise that this answers the question posed in the title of the article and that you may be tempted to click away now. But keep reading, because you need to understand more about this situation. You need to know what bad credit is, how you got it, how you can fix it, and how you can keep your credit “good”.
What do lenders look for?
So, you’ve gone to a creditor to borrow some money. Of course, the idea here is that you’ll pay the money back eventually. Just like when you lend money to someone, it requires an assessment of how likely it is that money will be returned.
You felt comfortable lending that $30 to your close friend Trustworthy Tina, right? You knew she’d be good for it; she doesn’t borrow often, but she’s been a good friend and has always paid back other loans. But when that weird Devious Dave guy you barely know came to you asking for a loan, you said no.
You assessed his history and reached a negative conclusion. You’re rejected, Devious Dave!
Creditors have to do the same thing. If they’re going to lend you a large amount of money, they need to know how likely it is that you’re going to pay them back.
A credit report asks the question: what kind of investment is this person?
How much of a risk are they?
To assess this, creditors will look at several things. What kind of credit history do you have?
Have you had loans in the past that you had evident trouble paying back?
Do you still have several loans out?
Do you have an income sufficient to pay back what they’re going to lend you?
How stable is your job?
If you have a high income but your job isn’t that stable, that will knock your score down. How much collateral do you have?
If you’re applying for a secured loan, you’re going to need some assets to back you up. And what are you going to use the loan for?
Is it something vital, like a place to live?
Is it something that’s going to make money?
Getting a bad credit score
So if your lender went through their criteria and found you didn’t meet a specific score, then they may reject you.
There is a possibility that they’ll lend you the money anyway, but with very high fees and interest rates. The higher the risk for the creditor, the more you’re going to have to pay. If they decide to lend to you at all, that is.
Going back to our original example, let’s say that you got rejected outright. They looked at your application and dramatically slammed a blood-red REJECTED stamp on it, right in front of you.
Your loan dreams are done, right? Wrong. You hopefully noticed that I mentioned the possibility of a creditor giving you a loan even if you have a bad credit score.
Well, why not go to another lender? Ask them as soon as possible about their policies when it comes to low credit scores. This may save you going through the process again and paying more fees.
There is also a financial myth of sorts going around that this credit score is a universal, objective thing. This isn’t true. There are several criteria that are found in most credit checks, such as the ones I listed above. If you got a bad credit score from one company based on these things, then it’s doubtful you’re going to get a glowing one from another. But you may still get a good enough score that you won’t be considered that much of a risk.
The fact is that creditors will usually have their own unique criteria, specific to their company and its policies. If you’re with a bank, it may also depend on what kind of account you currently hold with them.
In short, getting a bad score from one creditor doesn’t mean you’re on some kind of international “loan blacklist”. Don’t let anyone trick you into believing such a thing exists!
How can I fix – or avoid – bad credit scores?
Have you got a bad credit score? Would you prefer to resolve that issue rather than try your luck with another creditor? Good on you.
While you may be able to get a loan with someone else, your credit score will probably still not be healthy enough to avoid high fees. The best thing to do is do your best to resolve the problem.
If the whole business overwhelms you and you’re not sure where to begin, consider getting help from one of many top credit repair companies.
They’ll be able to assist you through the process of getting your credit score looking healthier. Even if you know what you’re doing, they may be able to speed up the entire process so you can get that needed loan quicker.
Otherwise, it’s a case of being on your best financial behaviour. This is the best way to avoid getting in this situation altogether. One area it’s best to look into is your credit card. Do you have a credit card? If the answer is no, then you may want to consider getting one.
Every time you use your credit card, even if you’re only buying a small pack of gum, you’re taking out a loan. That gets paid at the intervals defined by your credit card company. If you’re paying off thee small loans in full and on time, then you’re building a bunch of good credit. If you have a credit card but your use of it outweighs your ability to pay it off?
Then stop using it for a while. Pay off your credit. Once it’s paid off, revert to using it for small, manageable purchases from now on.