As adults, we must prioritize managing our finances. Knowing how to save and spend money is crucial for our everyday lives.
When savings are insufficient, you can get financing options where you borrow money from institutions and pay it back on time. However, borrowers are required to have a good credit history to borrow the money they need.
What is the effect of having bad credit on your finances, and how do you overcome it? The following is a brief description of credit, how you can measure and determine good and bad credit, the effects of having bad credit and its options, and how you can have better credit.
What is Credit?
Credit is the reliability from lenders that a borrower can repay within the scheduled time. It’s built on trust, with the lender risking their money by relying on the borrower to return it. It’s accumulated over time by taking on various financing options and paying them off accordingly.
The more punctual you are in paying off the loans, the better credit you get. Its significance lies in the lenders, who will ultimately determine whether they will lend you money.
There’s a way they can measure someone’s credit to tell if a borrower is qualified for how much they want to borrow.
The means of measurement that lenders use is a credit score. A credit score is a 3-digit number that objectively interprets a person’s creditworthiness. The higher the credit score, the higher the creditworthiness, and the lower the credit score, the lower the creditworthiness.
A credit score is computed based on a person’s credit history and how they have paid off past payments and loans. Loan repayments and even fees are taken into account when computing a credit score. Credit bureaus are the institutions that provide them for lenders and individuals who need them.
The scores could differ between credit bureaus and even countries but are still generally similar. The scoring typically ranges from 300 to 850, the former being the lowest and the latter the highest.
Above 670 is considered a good credit score and can get you the best deals a lender can offer. However, you won’t get similar privileges if your credit falls into the wrong category.
The Disadvantages of Bad Credit
The following are the cons when you have bad credit.
- Less financing options: Prominent lenders like banks and huge lending companies need you to have good credit, so they may require having a particular score to borrow a specific amount of money. And if you do not have an adequate credit score, you might not be qualified to borrow the amount you want, or worse, your ideal lender may have nothing to offer you.
- Higher interest rates: Lenders carefully look up individuals with bad credit. To them, there is a lot of risk in lending money to someone with a terrible credit history, and stricter rules may have to be placed to ensure repayment. Borrowers with bad credit will have higher rates than those with good credit.
Financing Options for People With Bad Credit
Even with lesser financing options, borrowers with bad credit still have a selection of options depending on the lender and the type of loan they want.
One such option is to opt for a lender with good rates. If you are part of a credit union, they typically have lower rates given their non-profit status, which would work well if you need a long-term loan.
Alternatively, if you want a short-term loan, you can opt for lending companies. Several lending companies have offers that do not require good credit or don’t even check credit at all. Most of those are quick cash loans or something similar.
Lending companies are also available on the Internet. You can conveniently visit their website and get the loan in less than a week. Thus, if you need, for example, a fast loan, you can visit lenders like CreditNinja.com and get the money in just a few clicks.
How to Have Good Credit
Even when there are options for individuals with bad credit, you still have to consider getting a better credit score to get more opportunities as far as financing goes. Here are tips you could do to improve your credit score.
- Pay on time: When you have several payments to take care of, be as punctual as possible. Paying on time is a significant factor in getting good credit, ensuring that you can be trusted with being lent a reasonable sum of money. If you are in debt, begin paying off the more urgent and earliest ones first.
- Do not get into more debt: The bigger debt you have, the worse your credit score gets. It would be better for your finances if you only took on loans you can afford. Biting more than you can chew can affect your daily expenses and decrease your credit score even further, especially since you may be unable to pay them all off on time.
To Sum it Up
Credit is a basis by which lenders can entrust a borrower to repay them. Having bad credit can lead to fewer financing options, so it would help to keep your credit score in good standing all the time.