What to Do With a Bad Credit Report

Life sometimes has a tendency to kick you when you’re down. One example of this that many people experience is the sudden need for a loan while they have a bad credit score. Before you despair too much, however, it’s important to understand what a bad credit score is.

What exactly is a credit score?

When you apply for a loan, the lender or creditor will assess your information and give you a credit score. This credit score is a way for them to try to predict your future. They’re trying to figure out the answer to the following question: If we lend this person money, how likely is it that they will pay us back?

If you have a strong credit score, it means you have a good history of paying back loans. You show that you’ve been on your best financial behavior. If this is the case, lenders will probably be happy to lend you money. A credit score is a three-digit number, usually between 300 and 850. The higher your score, the better your financial history is making you look. If you have a low score, however, you’re going to seem like a risk. Lenders will be more reluctant to work with you.

How does a bad credit score happen?

Bad credit occurs when you have a poor history when it comes to prior credit agreements. These can come in many forms. Let’s say your bank account offers overdrafts. If you’ve ever dipped into your overdraft and stayed there for too long, it will affect your credit score. The same goes for those who go over their overdraft limit (usually resulting in a fine). However, a bad credit score usually indicates several problems, not just one or two offenses.

Having a credit score in the 600-and-below region will brand you as “sub-prime”. This means what it says: you’re considered a less-than-excellent candidate. Subprime loans do happen. But since widespread subprime loans were a major contributor to the 2007-8 recession (a.k.a. The Great Recession), people aren’t so keen to hand them out these days.

A quick note about differing credit scores

It’s important to note here that you do not have a universal credit score. See where I wrote “usually between 300 and 850”? Keep that in mind. It’s because different lenders will have different credit scoring models and number ranges. Some lenders will care more about certain “offenses” than others, for example.

So getting a bad credit score from one lender doesn’t necessarily mean you’ll get the same report from another. It’s usually a good indication that you have problems that you should fix as soon as possible, however. It’s not recommended that you pursue a loan any further if you’ve received three bad credit reports. It’s better to start fixing the issue instead of racking up loan application fees.

How will a bad credit score affect me?

I’ve written about the difficulties of getting loans that a bad credit report comes with. But that’s not the only problem you may face. If you do find a lender that will give you a loan with a bad credit score, you’ll usually find that you’ll pay extraordinarily high fees.

Photo by Frankie Leon
Photo by Frankie Leon

Getting a credit card probably won’t be a problem. But the point of credit cards for their suppliers is the high interest rate. And if you don’t have a great credit score, you should prepare yourself for an interest rate that’s higher than usual. A poor credit report will also result in high insurance premiums. Home or car insurance will cost you a lot more; statistically, people with a low credit score are more likely to make claims.

It’s possible that none of these things will affect you. But there are more universal problems. A prospective employer is allowed to look at your credit report in order to determine your job suitability. A landlord can also check your score before deciding to rent a property to you. Landlords and employers generally need your consent to check this info. Not allowing them to check it could prevent you from getting the job or property anyway.

How to start fixing the problem

The first thing you need to do is lessen future credit agreements as much as you can. If you have a credit card, you must remember that every purchase you make with it is a credit agreement. So start paying cash for your purchases instead of using your credit card. In fact, consider not making the purchase and putting the money towards settling any debts!

Paying off due balances is extremely important. Being behind on debts is the big killer when it comes to your credit report. This may mean living more frugally while you raise the money to make the payments. Obviously, this won’t be heaps of fun. But the financial freedom you’ll attain in the long run will make it worth it.

Looking into credit repair

Sometimes, a credit score might not be improving at the rate at which you need it to. If things aren’t adding up for you, there could be errors in the report. These are actually more widespread than you may think. Errors in your report could be mistakes in your personal information or reporting errors from previous lenders. There is also the need for verification to consider. If the company compiling your credit report cannot verify a negative item on your credit report, then they are required to remove it. Let’s say you borrowed money from a company that are no longer in business. If this company can’t be contacted to verify this information further, then it can be removed from your report.

Photo by Visual Hunt
Photo by Visual Hunt

It’s difficult to resolve these issues on your own. A credit repair service is vital in these situations. You must be careful who you deal with, though. Do your research to ensure that a service will be able to help you. For example, looking at Lexington Law Firm Credit Repair reviews will show that they are a trustworthy firm. You can also check companies with the Better Business Bureau to ensure trustworthiness.

A bad credit score must be resolved sooner rather than later

If you’re getting poor credit reports from several firms, then you need to take action as soon as possible. In fact, it’s better to get a credit report before you even start applying for loans. This will do away with application fees while you verify how solid a candidate you appear.

The problems that affect credit scores will only affect credit scores more the longer they’re around. Take action now!

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Emma

It's a little lonely being one of the two female writers here, but I do my best! You'll find me covering everything from relationships to the newest gadget I'm excited about.

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