Do you know that a bad rating on your creditworthiness can lead to the dismissal of requests for credit? Every lender will perform a background check before approving the needed amount to save themselves from losing money. There are a variety of reasons for a bad credit score as discussed below. However, we suggest not to worry as there are ways to transform a bad rating through credit repair.
- Late payments
- Collection accounts
- Bankruptcy filing
- Defaulting on loans
- Administrative error
- Lack of credit history
Late payments: Lenders, utility providers or credit card companies have the authenticity to report consistent delayed payments to the credit bureau. Bad credit leads to marking credit scores as “poor” or “very poor”. Such a rating will prohibit the acceptance of your credit request.
Collection accounts: Debt collection agencies are hired by the creditors for failure to secure payments from a borrower. These third parties enforce the collection process. This information of delinquent debt is recorded in the credit report. Therefore, it is essential to repair the bad credit to avail credit from a lender.
Bankruptcy filing: The inability to clear the debt of an individual or company will attract filing for bankruptcy. This is a reputation-damaging event in an entity’s life. The data of bankrupt entities will be recorded in the credit report. The majority of lenders back off from lending to borrowers with a history of court cases related to financial situations and bankruptcies. A person with a lack of ability to handle a variety of credit products such as home loans, personal loans, credit cards, is also prone to bad ratings.
Charge-offs: A charge off is a black mark on the borrower’s credit score due to the inability to make payments on time. It is a signal that the creditor has tried his best to acquire payments several times and failed. The charged-off account holder’s profile is locked preventing further purchases. The charge-off borrower still must repay the balance to the creditor.
A borrower’s credit score drastically drops and is reported to the credit bureau for the same.
Defaulting on loans: The loan defaults are similar to the charged-off accounts. Missing out payment for more than once leads to marking off a default. Borrower’s reputation will be damaged once the data is shared by the lender with the credit bureau. A potential lender will perform a background check to credit history before loan approval. Bad credit will stop loan approvals as the borrower is unlikely to repay the lent amount.
The reasons for nonpayment may be genuine like loss of a job or exhaustion of savings due to medical emergencies. Such a rating will shorten the chances of receiving approval for the sanction of loans. A wrong choice of a credit card with unreasonable interest rates and fees can also make your life shaky.
Administrative error: There is a negligible percent of chance of wrong data entry by the administrative department in regards to the credit score. Sometimes, fraudulent activity may result in such scores. However, such an error costs one’s reputation and rejection of borrowing requests. Therefore, it is essential to contact the concerned authority for rectification and improve the credit score for the attainment of approvals. Identity theft is one of the reasons that could run up huge bills and damage your rating.
Lack of credit history: A few of the individuals avoid borrowing money due to fear of missing out on consistent payments or unforeseen events. Such individuals with no credit history may become ineligible for loans in future.
From the above, it is clear that one must opt for a credit repair on the existence of a bad rating. However, it is best to track expenses and make necessary changes to have a good credit score to get loans for important purchases. Find more information at Theislandnow.com.