A bad credit history is such a credit score that does not allow you to go through the bank client’s verification procedure and get a loan. There are many factors that may cause a poor credit but there are also many ways to improve it.
3 Common Things That Cause A Bad Credit Score
- Late payment (one or several). All the data on your loan payments go to the Credit Bureaus, and any bank can get this information in this future using this bureau. Untimely payments adversely affect your credit history. Some banks have too strict requirements and disapprove borrowers even if they had only one late payment. Others are willing to lend to “problem” clients, who managed to prove their responsibility and solvency. In general, if you fail with the full loan repayment or a single monthly payment, banks will appeal to the judicial authorities, and this will ruin your credit history;
- Regular delays in payments. If a client delays a monthly payment for several days, but finally makes it, then his credit history cannot be considered “bad”, it is rather “spoiled”;
- Credit rating ruined by a mistake. This can happen due to the fault of the bank or delays in the money transfer service. If you convince the bank of your innocence, then it is not difficult to take a new loan.
What Else Can Hurt Your Credit History?
There may also be several other factors that can cause a bad credit score. Let us analyze some of them:
- A large number of recent requests. 5-10 recent requests for credit speaks of your acute need for money. If these requests were refused by other banks, the refusal in each of the next is almost guaranteed. To prevent this from happening, you should first choose 2-3 banks for applying that are most suitable for you. If you fail with these banks, wait some time and try to apply in other 2-3 banks;
- A large number of recent microloans. As we have already said, banks negatively treat borrowers who take expensive loans from microfinance organizations too often. If you need payday loans 3-5 times for the last month, it means that you badly need money or simply do not know how to manage your finances. Try not to use microloans without a real emergency;
- Many loans of the equal amount. Banks like “good” loans – those that increase your level of well-being and standard of living, such as auto loans or mortgages, and do not like “bad” loans which only load you with the additional financial burden. These are consumer loans and credit cards. It’s no problem if you have two cards, a mortgage and a car loan. But if you have 4-5 simultaneous “needs”, this indicates that you live beyond your means and rely too much on borrowed funds. Close the extra cards, get rid of the same loans (starting with the smallest). This will help improve a bad credit history;
- Signs of a credit “pyramid” – when each new loan is larger than the previous one, it is obvious that each of the following loans was taken to repay the previous one. Everything can look fine – you pay off loans without delay, according to the schedule. But bank employees know: any financial pyramid sooner or later collapses. In this case, the borrower is not given the next loan. Do not build credit pyramids and try to stop the existing pyramid which has formed in your credit score due to some life circumstances.
Important: The credit history is formed after the first application to the bank and is kept for 15 years. It accumulates all the information about how the borrower copes with his obligations under the contract.
Best Ways To Improve Bad Credit Score
Often, people wonder how to improve a bad credit history. In fact, such a document cannot be overwritten, erased or cleared. It’s issued at the moment when a person takes his first loan and is supplemented throughout his life. However, it is still possible to correct a spoiled credit history. However, we must say that this is a rather time-consuming process.
Of course, banks do not want to give a loan to a borrower who has not yet paid out his previous loans. Therefore, the first step to improving a bad credit history is the repayment of all overdue loans, even if the banks have long ceased to require the delayed funds. If the credit history indicates that the borrower has no outstanding loans, his credit history will no longer be poor.
Next, you need to take a few new loans, so that you have an opportunity to prove that you are a good and responsible borrower. Of course, new loans need to be paid on time and in full amount, avoiding late payments. However, do not expect that banks will give a credit on favorable terms to the owner of a bad credit history. Most likely, they will offer a high interest rate, strict penalties and a short loan period. However, you will need a few small loans, for example, to buy a phone or a new kettle, so that your credit history becomes much better. Gradually, banks will offer you more favorable loan rates and terms. And after some time, no one will remember the mistakes you made before: your credit history will be considered good.
How to improve bad credit history with small online loans?
You can solve your problem with the help of online short-term loans. The policy of microfinance institutions is more loyal. They work with citizens who are classified as “risky” – students, old people, and also people with a bad credit history. In theory, the score improvement scheme is simple:
- you apply for a loan to correct your credit history (it is important that the company cooperates with the Credit Bureau);
- you receive funds;
- you use them;
- you pay a loan in full, in exact accordance with the specified repayment schedule (early loan repayment is usually not used in such cases);
- the credit bureau updates the information, and your credit history now indicates that you are a reliable borrower.
Bear in mind that one loan is not enough. How many loans will you need to take? The answer is individual. The number of loans is dependent on three factors: the total amount of the overdue loan, the number of delays and their duration. The information on timely repaid loans will gradually replace your past negative experience with a positive one. The more timely repaid microloans you have, the better your credit history looks. With the help of online short-term loans, you will not only improve your credit score but also be able to receive larger loans in the future.
We hope these tips for improving your credit score will help you remove all negative items on your credit reports and you will achieve your financial goals!