A guide to bad credit and how it’s knock-on effects affect you
What is bad credit?
In the simplest terms, if you have bad credit it means that you haven’t kept up with your financial obligations. For example, either you haven’t paid your bills on time or you haven’t paid them at all. Lenders and banks will take this as a sign that you’re unable to pay or keep up with your finances. Understandably, this is not a good sign especially if you want to borrow money.
Once you have missed or made a late payment, a negative marking is left on your credit file. This marking will then lead you to be classed as having bad credit and you’ll be considered an unreliable lessor. Sometimes this can be a wrong entry, which is why it is important to always check your credit report! Other times, it could be due to unexpected events or expenses that are out of your control.
If you think you have been unfairly given a negative credit rating by a lender or biller then you should first attempt to speak with the company and try to have them reverse or remove the entry. If it is correct, you may be able to negotiate with them to repay the debt and have them remove or edit the entry on your account.
Have you ever felt like just when you think the bad news is over, it comes back like a wave? Bad credit can take years to recover from especially because of its knock-on effects.
Knock-on effects of bad credit
Bad credit can affect more than just your ability to get a loan. There are several everyday effects that bad credit can hinder.
Renting a house
If you want to move rental property or rent a private home, bad credit can be a worry. Part of the rental process, especially if you’re going through a rental agency could be a credit check. If you have bad credit or a history of defaulting on payments, your application might be considered risky. If you’re bidding on a popular rental property, this could put you at a disadvantage even if you’re sure you can pay. Sometimes, this problem can be fixed by nominating a family member or friend as a guarantor. If they’ve got good credit, they can vouch for you to get the house. However, be careful who you nominate as your guarantor because if you don’t pay your rent, they are responsible for it!
Your mental health
The stress of worrying about finances is no small matter. Feeling hopeless or dejected has been shown to have a negative impact on your mental health and even your finances! Many a time, mental health issues or setbacks can lead to financial difficulty.
High-interest rates on credit cards
If you’ve got bad credit, you’re generally seen as a riskier client for big banks or loan providers. This can mean that they will make you pay for this risk by slapping you with a higher interest rate or reject your application. Unfortunately, this is a vicious cycle because, with each credit card or loan application rejection, your credit score decreases. Therefore, it’s always a good idea to check what the requirements for each lender are before applying.
Higher insurance premiums
Insurance is an important thing to have because it protects you from the unexpected and can give you a sense of peace. However, if you have bad credit, your premiums can be higher than normal. This is regardless of the number of claims that you have filed previously.
Problems starting your own business
Starting a business is quite an undertaking and you may need a bank loan. However, if you’ve got bad credit, getting a loan can be difficult. Even if you manage to get a loan with an affordable interest, the principal amount borrowed may be limited.
Getting your car could be an issue
Like starting your own business, if you’re planning to buy a car or upgrade your existing one, you might need a loan. You might get your car loan application denied or have to suffer high interest rates. Unfortunately, this can put you at a higher risk of bad credit.
Things you didn’t know about bad credit
Credit scores are quite new
Credit scores were only established about 60 years ago. In the beginning, loan approvals were determined by stern bankers in suits. It’s exactly like every movie scene in a bank! Understandably, the process was unfair and rather subjective. For example, if the banker was having a bad day, they could’ve rejected your application for the silliest of reasons!
Want to know how long you’ll stay married? Check your credit score!
A study found that couples with very different credit scores were more likely to separate. However, there are probably several confounding factors to this. For example, the added stress of a bad credit score!
What you see on your credit report is different from that which your employer sees.
Although your boss can view your credit report, it’s a special report. They won’t be automatically allowed to view your credit score. They may request permission to access your credit report, but it’ll be a specific report tailored for employment screenings. However, its considered unfair and unethical to deny you employment. If you feel like you’ve been denied employment because of your bad credit score, talk to a professional.
How much you’ve studied won’t affect your credit score
Your credit score is affected by debt and payments, not your level of education. Therefore, the number of degrees or certificates that you hold doesn’t matter. However, getting multiple degrees can create multiple student loan debts. These can harm your credit score if they are not paid off on time and land you in bad credit.
Cancelling your credit cards can decrease your credit score
While you shouldn’t have 10 credit cards and counting, a credit card can be useful in getting out of bad credit. This is because it serves as a record that you are making regular payments. Prompt and regular credit card payments can be a positive factor on your credit report. It shows that you are responsible and improves your chances of being seen as a reliable lessor. Basically, lenders want to see that you will be able to make your loan repayments.
How can I get bad credit loans?
At Good People Bad Credit, we recognize that sometimes bad credit is hard to avoid!
If you are stuck in bad credit and want a personal loan but are still earning a reliable and regular income for at least 90 days, we work with a number of lenders who could help.
To apply for a bad credit loan, all you need to do is jump onto our Good People Bad Credit website (as all our applications are done online), and fill out our personal loans calculator. Here you will enter the amount you wish to borrow, the length of your repayment period (e.g. 12 months) and then you will be shown an estimate of how much you might repay either weekly, fortnightly or monthly.
Once you’ve determined if the repayments are doable for you, click apply now! The rest of the process should only take minutes and you can receive approval within 60 minutes*, if you apply during business hours. Once we have approved your application, the funds could be released almost immediately. The amount of time it takes for those funds to reach your personal account will depend on the lender and the bank you are with.
What is debt consolidation?
The easiest way to get out of debt is generally to make a budget and stick to it. However, this can be difficult if you’re paying off multiple loans, with different interest rates and different debt terms. That’s where debt consolidation might come in handy. Basically, this means that you’re ‘combining’ all your debts into one manageable loan. Debt consolidation loans are useful if you want to make your repayments simple. You make one payment to one lender with one deadline every month in place of multiple payments to multiple creditors with multiple deadlines. In the long-term, you will be able to save money with debt consolidation. However, it’s important to ensure that your debt consolidation loan has a lower interest rate and monthly payment than the combined cost of all the smaller loans you’ve consolidated.
How does debt consolidation affect your credit score?
Your credit score is affected by a number of things. However, the most important might be the way you use your credit (i.e. utilization score). This basically refers to the amount of debt that you have in relation to the total debt you could be incurring. So, if you’ve got a maxed-out credit card debt, your score could suffer even if your other loans are paid off.
However, if you consolidate debt to pay off your other loans and credit cards, your utilization score could decrease, which could increase your credit score! However, it’s important to remember that cancelling your credit cards also decreases your credit score. Keep some cards active and always pay off your balances to further build up your credit score!
We hope this nifty guide has helped you with your bad credit queries. Bad credit can happen to anyone. In fact, Australians have some of the world’s highest personal debt rates! However, it’s important to always talk to a professional about your options before taking any further steps.
If you’ve decided you need a bad credit loan, talk to us today! At Good People Bad Credit, we might be a 100% online company, but our customer service representatives are on hand to help you. Alternatively, you can hop over to our website and use our loan calculator to get a clearer idea what your repayments might be.