Every major bank and financial institution in the world follows certain credit score and system. Despite this, there is very little information available to the masses regarding how the credit scores work. In order to assess the loan worthiness of an individual, the banks evaluate their application as per their credit score. The general notion is that a good credit score gets a loan, and a bad score means your application will be rejected.
While this is not wrong, it is not completely true as well. There are a number of private lenders and credit institutions which offer personal and short term loans to people who need financial help but have a bad credit.
The Truth behind Bad Credit
In simplest terms, your credit score determines your eligibility for any type of loan or financial aid based on your repayment capacity. This repayment capacity is calculated on the basis of your past financial activities. When you default on a payment or are unable to pay off your credit card bills or loans, your credit rating takes a dip.
On a generalised scale of 850, a credit score of 700 and above is considered to be good, and your application for loan will be mostly pre-approved. Most banks and major financial companies keep 600 as the base cut off for their preferred credit score for any type of loan applications. This is why they term any score below 600 as bad score, and render them ineligible for any type of services.
But in reality, this score is a projection of your inability to pay your dues in the past. Even if you have paid off these loans, the credit ratings take years to improve. This is why many private lenders and payday loan companies approve short term loans bad credit applications that are denied by banks.
Checking Your Credit Score
Since there is no awareness regarding credit scores and how they are developed, most people do not take efforts to assess what’s keeping their scores low. This is why it is very important to ask for a detailed report about the factors that are responsible for your credit score. You can get a free copy of your credit report once a year from the credit rating body in your country.
Once you get the credit report, go through it to identify the payment defaults that have decreased your score. Many times your credit card company or bank does not forward the clearance report to the rating body. This means that your score is low even when you’ve made all the necessary payments. If you find any such issues in the report then contact your credit card company or bank and get the issue resolved at the earliest.
This report will also help you identify which payments you need to make on priority, in order to improve your credit rating. One important thing to remember is that the credit score is restored gradually. So you might have a credit worthy salary and reserve, but the banks won’t grant you loan until your rating is up again.
How to Improve My Credit Score?
If your credit worthiness has decreased to a very low level, you would have a bad credit score. Since banks and financial institutions do not want to do business with bad score applicants, they often do not provide them assistance on improving the score. But, in reality, it is not very difficult to restore your credit score to a decent level.
Depending upon your current rating, your salary and employment type, there are a number of things you can do to boost your credit worthiness. Some these are:
- Start paying off your dues – credit score goes down because of your inability to pay off your loans and credit card dues. The more you default on payments, the lower your credit rating will drop to. If you cannot pay the entire amount at once, talk to your bank and discuss an easy monthly payment plan. Most banks agree to monthly repayment schedules easily. This way you get rid of all the loans and improve your ratings gradually.
- Save more – another way you can repair the damage to your credit score is by creating cash reserves in bank and other financial organizations. You can invest in some policies or schemes that offer assured gains at low rates. These reserves and savings help you get loans easily as your repayment capacity increases.
What if I need the money now?
Even if you gradually pay off all your debts, the credit score rating will take a long time to be better. In case you need a loan on urgent basis, you can approach any private lending organization which offers short term loans bad credit applicants. Good credit or bad, your eligibility for a loan depends entirely on your current ability to repay the loan you are taking.
Since your repayment capacity is not proven very strong, you will need to pay a little higher interest rate on the loan you borrow. However, by making some changes to your loan application, you can easily get a loan for a short term basis. Having a low debt to income ratio helps, as it means that you are making enough money to pay off the credit in due time.
In order to get a loan from any bank or private lending agency, you must showcase your capacity to earn and repay the amount as soon as possible. If you can furnish a steady income from your job, or present a mortgage, the chances of your loan being approved increase to a greater extent. However, make sure that you are earning enough to pay off the new loan as well as the existing dues gradually; otherwise you will find yourself stuck in a financial pit.
Remember, it is important to have strong financial security in terms of less dues and adequate savings. But if you need immediate monetary assistance for any urgent situation, there is help available always. Look for reliable lending parties offering bad credit loan online and work out your finances smartly.