Bad Credit is the term used to describe a poor credit
rating. Common practices which can damage your credit rating include late or
missed payments, exceeding the limit on cards, defaulting on loans or declaring
bankruptcy. "Bad Credit" can result in the denial of future credit.
What is credit?
Credit, or more specifically your credit rating, is a
numerical score that's determined based upon the reports of banks and other
lenders who you have had a loan, account, credit line, or other form of
financing with in the past.
Positive reports increase your credit rating resulting in
good credit, whereas negative reports reduce your credit rating resulting in
bad credit. Of course, one or two negative reports won't cause you to have bad
credit; it takes time and specific actions on your part.
How credit goes bad
Bad credit is usually a direct result of your failure to
make satisfactory payments on a loan, credit line, or other financing. This may
sound severe, but all that it really means is that you were either commonly or
consistently late making payments or that you've defaulted on one or more debts.
It may be that you shared an account or two with your spouse
who had bad borrowing habits which affected your credit. Or it could be that
you've gone through a bankruptcy or foreclosure process.
When you default a debt, it influences your credit score
negatively. Therefore, if you have been defaulting debts so many times in the
past, it is said that you have a bad credit. Other things that tarnish your
credit history includes mortgage arrears, County Court Judgments, individual
voluntary arrangements etc.
Therefore, a bad credit simply means that you have a lesser
credibility when it comes to making the repayment. That is the reason why you
get difficulty in getting loans from other traditional institutions.
The lower your credit score is, the more of a risk lenders
view you as... which is why it's so hard to get new credit lines once your credit
is bad. Unfortunately, this also can make it much more difficult to improve
your credit rating
Often times there are legitimate reasons for this, illness,
unemployment, and legal matters such as lawsuits or divorce can all cause you
to fall behind. The good thing is that just because you have bad credit now
doesn't mean that you have to have it in the future.
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