How will Bad Credit Affect your Loan

Most people with bad credit are easily discouraged after being turned down simply after visiting one lending source. Irrespective of the loan purpose; home mortgage, car loan, personal loan, or credit card, the consumer is not only affected by circumstances of a financial nature but also in for a big emotional let down.

Exactly what is used to define bad credit? If an individual has ever established some type of institutional credit meaning trade lines that appear on that person’s personal credit
Report then a credit history of some type has been established. This history is what defines you as a person in the eyes of the financial community. Your credit report which is a snapshot on how you have paid creditors in the past is the only gage that most lenders use in their evaluation in making loan decisions that affect you. There is such a thing as alternative credit but that’s a topic for another day.

Often times you’re asked the words, “how’s your credit?” It may range from Excellent to Poor, you may not honestly know at all until the place you apply pulls your credit. That’s when reality sets in because your scores are reported by the “Big Three” and I don’t mean the ones in the auto industry. Experian, Equifax, and Transunion are the repositories (data collectors) and they factor your credit scores based on information they receive about you. Each of them have a different methodology in determining your scores; therefore in most cases they will all be different. Typically the rate of interest that lenders are willing to offer you for the type loan that you are applying, is directly linked to your credit scores. In many cases theses lenders may not be willing to offer you anything at all due to “bad credit.” Incidentally, in case you didn’t know the higher the credit score the better the interest rate you will receive.

The good news is that credit changes daily for everyone in how it is used. For those of you with a history of bad credit it’s any easy fix. Never, I mean never pay your bill 30 days past the due date this is the cardinal sin which haunts most people with bad credit. Remember, whether you pay in person, by phone, via the internet, western union, or by mail make sure the creditor receives your payment and is able to post (apply) your payment before the 30 day due date. So always be on time with your payment, don’t procrastinate it’s your credit and all how lenders look at you. Eventually, after a period of as little as 12 rated months your positive accounts that you have made timely payments on will take hold and improve your credit profile.

Collection accounts and charge offs also affect people in securing a loan. Depending on the date and type of collection or type of charge off, you would be wise to seek good counsel from a professional source that will assist you in your negotiations with the creditors in an effort to do the right thing. I am not professing that you go to a quick fix credit repair company because these usually cost money and often times don’t get the results you need. Try your family attorney, accountant, financial planner for advice and recommendations.

Finally, loans are available for people with bad credit. Often times the interest rates are double, triple, and even quadruple what people with good credit pay. You must ask yourself this question; If I didn’t have bad credit how much more money would I get to keep from my paycheck instead of having to pay high interest loans to someone else?