Bad credit puts people in really bad situations where interest paid is high and credit just accumulates with interest. It is just a tragically downward spiral where debtors just keep swimming into debt and are not able to come out of it. Lenders are like predators that are keen on the interest that can be collected from them.
Bad credit is the term used when borrowers are unable to pay back the credit amount. They default in returning back the loan taken and do not pay the interest either. When lenders lend money to such bad creditors they face an enormous risk in lending such money to defaulters. Bad creditors find it hard to get loan amounts from financial institutions too.
Effects of a bad credit rating
A credit is termed as bad credit depending on various factors such as amount owed, history of credit payments and the new enquiries of credit. The history of credit payment gives details about the repayment of loan on time or default amount, the total debt amount of mortgage, bill collections, credit cards and other debts of the individual The lender may have a mix of credits such as car loans, credit card , mortgage loan, etc. The credit score is very low for a person who has a bad credit history. In such cases he will not be able to get loans easily and his interest rates just keep increasing out of proportions making his payments almost double up with increasing interests.
Good credit is when the borrower borrows money and repays it completely and within the stipulated period. Having a good credit rating enables a person to borrow money for all purposes such as car loans, credit card purposes and for home mortgage loans too. A person gets good credit rating when his payment by credit card is fully honored and his monthly payments for his car and mortgage loans are paid promptly. The credit bureau is updated about the credit payments from credit reports and he gets a good credit.
Effects of a Good Credit Rating
When a person gets a good credit rating, he can get loans easily. The loans are available at lower interest rates as his credit history is good. He gets a good reputation at his workplace and at other places whenever he uses his credit card as his records for credit payment are good.
To err is human. There are many situations that put people in poor financial conditions. However doing the best to come out of debts and making prompt payments help people to come out of financial downturns. Cutting down on expenses, keeping fixed budgets and sticking on to expenses within budgets, working extra time to get out of bad credit loans are some of the measures that people can do to modify their bad reputation. Availing bad credit loans are extreme steps that should be avoided to get away from bad credit ratings. Keeping a check on the credit ratings will help to improve the financial position of the borrower.