“I briefed that my loan can be despite my bad credit history, but my lender did not sign off on my application on the grounds of my poor credit report. I am completely stunned and do not know how to react at this situation.”
You may shrug off your credit report as several direct lenders promise you to lend money even if your score is disappointing. Consequently, you neglect to pay your credit card bills and utility expenses, which add up in a while.
You can take out short-term cash loans if your score is less-than-stellar, but lenders may deny approving certain loans like 12-month payday loans and installment loans. Though lenders do not run a hard credit check, they assess your credibility by running a soft credit check. It will not pull your score but affects a disbursal limit. Chances are a lender does not disburse what you have quoted.
Consequences of a bad credit
The amount of debts you are carrying has a significant impact on your credit score. Maxing out credit cards and ignoring payment of utility expenses will pull your credit score. In case, you have come up with a significant expenditure; you will not be able to apply for the loan. Here are the consequences of bad credit history.
You will end up with
high interest rates
Direct lenders always assess your credit history whether or not it makes hard inquiries on your report. Your credit score indicates your credibility. The higher the score, the higher the creditworthiness is, and the lower the score, the poor the solvency is. With a low score, lenders will doubt that you will make defaults and therefore, they will lend you money at a high rate of interest to mitigate their risks.
You can negotiate for an interest rate with a fair score, but you lose this right if your report raises a question on your credibility.
Your application will be turned down
Loan companies do not hesitate to bear risk to some extent. However, if your score is abysmal or your report shows County Court Judgment (CCJ), lenders will think that you rely on borrowings for your survival and do not pay back fund and may rebuff your loan application. Some lenders approve the request if you put a valuable security equivalent to the number of borrowings. Be cautious of accepting this offer as the collateral will be disposed of if you fail to meet your obligation.
Starting a business will be all but impossible
You may need a business loan for various purposes such as starting a venture, increasing working capital, buying equipment, and the like. Before a lender approves your business loan application, they will evaluate your repayment capacity, the purpose of taking the loan, and your business plan.
If your score is terrible, your request will be disregarded at once.
Trouble renting a house
If you are looking forward to renting a home, make sure that your credit history is good. Many property owners do not approve a rental application if your score is less-than-fair. Landlords look over your credit report to know about your creditworthiness.
They may deny renting out to you if your score is not good. They cannot take the risk of allowing someone who makes defaults to use their property. If anybody gets ready to rent, you will have to pay a higher security deposit.
Difficulty landing a job
Many jobs, especially ones in important management or inside the financial industry, require certain benchmarks to shortlist the most suitable applicant. Having a good credit history is one of them. Employers assess your credit report to know about items that can affect your work performance. If your score consists of high debt amounts, outstanding credit card bills, and bankruptcy, you will be turned down.
Now that you have come to know about the adverse consequences of poor credit history, the next step is to understand how to improve your credit score.
Best ways to improve a credit score
To push your score up, you need to monitor your finances and credit report. Whether you need loans for unemployed or cash loans, you need to have a good score to get a loan at affordable interest rates. Focus on the following actions and let your report shine.
• Pay your credit card bills on time
The use of credit card is not wrong as long as you clear all your dues on time. Late payment fees not only pull your score but also take a toll on your budget. If you have purchased with your credit card, make sure that you pay back by the due date.
• Do not max out your credit card
Each credit card company allows a fixed limit that does not mean that you will consume the whole of the absolute. Try not to use more than 30% of your credit card limit. It indicates that lender that you survive only on borrowings. Use cash and debit cards for shopping or any purchase. The Cap will allow you to stay within your budget too.
• Do not close unused credit cards
Keep remaining cards open as long as they do not cost you annual fees. If you close all your accounts, your credit utilization rate will go up.
• Consider inaccuracies on your report
You should go through your credit report at least once in a year to ensure that it does not contain any default that you do not recognize, that it does not demonstrate an outstanding account that has been settled already. Contact credit bureaus as you find any errors and put in a request to mend them.
• Do not fill in multiple applications
Do not throw caution to the wind when you need a loan. Various applications place several hard inquiries that reflect on your credit report, and they may linger on your credit report for a long time.
The bottom line
Whether you are applying for short-term or long-term loans, you cannot underestimate the importance of your credit score. Follow the ways mentioned above to build your good credit report.