Do you have a bad credit record? If so, how can you
remedy it and what are the consequences?
Is your credit score up to scratch?
How to cope with a bad credit record is something people need
to learn in order to avoid bad credit records in the first place. A
credit record is detailed information about an individual’s past
borrowing or repaying behaviour. It includes information about a
person’s late payments and bankruptcy details. Credit card companies and
other moneylenders use this information to determine a person’s credit
worthiness or his or her willingness or ability to repay a debt or a
loan request. Lenders are keen to see debt obligations can be handled
and paid timely on a monthly basis. The past payment history takes into
consideration both the income and the credit report before making credit
granting decisions.
A bad credit record is determined using a number of factors and may
include payment records showing a large number of overdue bills. It
could also be determined if in any way records show the person’s
inability to control their debts. A person will get a bad credit report
if any non-mortgage credit payments exceed more than 15% after tax.
Another factor is irresponsibility and instability. This is determined
by how long a borrower has stayed in his or her current job and home;
usually a bad credit report is evident if the duration is less than 2
years in different jobs or homes. If the credit outstanding limit is
more than one-third of the total credit limit allowed, then that is
considered bad credit.
Hard enquiries can affect a credit record negatively. This happens when
many enquiries are made if a person wants a loan. This enquiry is put on
record. This may in turn make the lender think the borrower has some
financial difficulty. Credits cards that are not used can impart
negatively on a person’s credit history by increasing the available
credit. This usually occurs if a person has a number of unused credit
cards.
Credit scores determine a person’s credit record standings. These scores
range from 300 to 850. A bad score is below 400 and a good credit score
is above 750. A credit score however, is repairable. Credit scores can
be reclaimed using a rather simple process. Reviewing one’s credit
report for errors is important to make sure no inaccuracies exist. One
of the errors could include late payments, records of charge-offs and
such negative information that should not exist or not belong on that
record. Other errors could be paid derogatory or charge-off accounts
that have been fully settled with on-time payments, reported credit
limits that are lower than they actually are and account records
included in a bankruptcy file. Fair credit reporting allows correction
and deletion of inaccurate information.
If one is too close to the 30% credit mark limit, it is wise to use cash
when making purchases. In addition, one should consider a priority to
pay the credit cards that are closest to the limits. Try to keep this
gap as wide as possible. Prioritizing can help a person in earning a
bigger score. Make timely bill payments. A person can lose up to 150
points by missing to pay one month of bills. These payments make up 35%
of the total credit history. Therefore, it is never too late to start
making prompt payments and building up credit scores. An automatic
online payment program by using a credit card can be set up to avoid
this problem.
Other ways include keeping old accounts active and abstaining from
credit card applications as much as possible. By keeping the above
points in mind and with a few months of perseverance and restraint, a
person can salvage a bad credit score; open up a new window of
opportunities and learn not only how to avoid but also how to cope with
a bad credit record.
|