Having bad credit can be difficult if you are looking to borrow money instantly online and if you are trying to get any loan or mortgage at all, as it is a signal to lenders that you are not the most reliable borrower.
If you find yourself with a bad credit score, and even a credit score less than 600 or a credit score lower than 500, it is worth looking into why you have such poor credit.
Having bad credit or even very bad credit in the USA will greatly affect your chances of being approved for any form of loan or finance, whether you need to borrow $600 or if you need a new cell phone contract. No matter what loan or finance you need, your credit score will always come back to haunt you.
You can however, utilize credit builder loans which are designed to help you rebuild your credit score and move from poor credit or bad credit towards average or even good credit scores over a period of time.
Here, we have listed some of the reasons why you might have bad credit, so you can consider what you might be able to do to improve your credit score for the future.
You Have Been Late With Repayments
If you are used to making repayments on your previous loans late or not at all, this might be why you have a poor credit rating.
This is one of the most common reasons why people in the USA have bad credit in the first place. It may seem like you can pay things like bills and expenses late. However, often, the creditor you are due to pay will report to a credit reference bureau which will then add a negative mark onto your credit rating.
Lenders expect that if you enter into a contract and borrow money from them, that you make the repayments both in full and on time, including interest. For example, if you take out an emergency loan you will be advised on the repayment terms and you will enter into an agreement with the lender, stating when and how much you must repay.
If you fail to make your repayments on credit, finance and loans on a regular basis, your credit rating can crumble as lenders will file this information into your credit report, all contributing to a bad credit score over time. If you continue doing this, you will fall into having a very bad credit score, making it even harder to access loans and credit.
There are also serious consequences associated with making repayments late, such as additional fees being charged and interest rates increasing.
This means that you will end up paying considerably more money than you borrowed in the first place and it may ultimately not have been worthwhile for you to take out the loan in the first place.
Defaulting On Loan Repayments
If you default on your loan repayments, this puts you into the same category as if you had made your monthly payment on the money you have borrowed late. This will include loans like:
- Payday loans
- Installment loans
- Bad credit loans
- Mortgages
- Bank loans
Defaulting on any loan repayment means that you have missed a scheduled payment altogether, and that you plan to pay off that amount of money the next month.
What Do I Do If I Have Missed Scheduled Loan Repayments?
Unless you double the repayment at the next date it is due, this means that you will be paying off your loan for an additional month. Defaulting on loan repayments, including if you make your repayments late, will contribute to you having bad credit over time, and will go against your credit score.
This means that wherever possible, you should make all loan repayments on time and even early if possible and not take out a loan if you are concerned that you may not be able to repay it in full on the agreed dates.
Will Filing For Bankruptcy give Me a Bad Credit Score?
Occasionally, when a borrower cannot afford to make repayments on their loans; with debts piling up and becoming unmanageable to pay and they know that there is no circumstance in which they will be able to repay what they owe in the near future, they can file for bankruptcy.
This means declaring to the bank and credit reference agencies that the borrower in question has insufficient funds to cover the debts they owe and will be unable to support themselves financially as a result of the debts hanging over them.
If you have filed for bankruptcy, all of your loans and repayments should be entirely written off, so that you have nothing left to pay.
This does however mean that your credit score will be massively impacted, and therefore that you may struggle to borrow any money whatsoever in the future.
Bankruptcy will be filed on your credit report and will contribute to a bad credit score, meaning that in future you may have to opt for more expensive bad credit loan options instead of loans like traditional payday or short term loans.
What To Do If You Are Worried About Your Credit Score
If you are concerned about your credit score and are afraid of getting into a situation where you have bad credit, there are some online tools which will allow you to check it.
Before you run a credit check on yourself, be sure that it is a soft credit search which will not impact your credit score. This will allow you to be sure that running a credit check on yourself will not affect you negatively if you are looking to apply for a loan or mortgage in the future, whether you need to find a $2000 loan online or need to buy a house in the coming years.
Once you are aware of your credit score, you can make more informed decisions surrounding your credit and how you might like to improve it.
Firstly, you should only take out a loan if you are absolutely sure you can make the repayments and if you do have debts, you should pay them off in full as quickly as possible.
If you are unable to make the monthly repayments on a loan, you should always speak to the lender to explain your situation and ask if it is possible to implement a monthly plan to make the repayment process slightly easier for you.
In addition, if you have a credit card, it might be beneficial for you to make all monthly payments through this account. However, missing or over-using credit cards can contribute to you getting a bad credit score over time if you miss your repayments too.
At the end of the month, you can then pay off your credit card in full and you will have repaid your monthly debt on time. This means that lenders should be able to see that you are reliable when it comes to money, and this will go in your favour when applying for a new loan or mortgage.
