Why You Have Bad Credit and How to Improve it

Are you someone who is struggling with your credit score? Have you made too many bad credit, credit hurting choices that make you question your own decisions? If you said yes to both questions, keep reading.

First, let us have basic ideas about credit score and bad credit.

What is a credit score?

Generally speaking, a credit score refers to a person’s creditworthiness to get approved for the loans or new credit they need. A credit score is a 3 digit number created by a credit reporting agency (in Canada we have two, Equifax and TransUnion). The information in those files, including how much money they owe and whether they pay their bills on time, is used to compute their credit score.

How is your Credit Score Calculated?

Your credit score is calculated based on your personal credit history of using and paying back debt. However, you will not get your credit score calculated if you have never had a loan before. A person’s financial habits could very well influence his or her credit score–whether it will be a bad one or not. A couple of factors are considered to affect your credit score:

Your personal credit history.

Your personal credit score is largely affected by your payment history, which accounts for the greatest portion. It simply indicates whether a person has paid their bills on time. Have you missed any credit card payments or have you ever been late in payment? If yes, your credit score was negatively affected. Usually the more a person misses, the worse his credit score will be.

Total amount an individual owes.

This includes mortgages, credit card balances, car loans, any bills in grocery shopping or daily expense, and more. All those expenses you may ever encounter could give a hit to your credit score.

Length of personal credit history.

The longer you’ve had a credit account open and have been using it responsibly, the better your credit score will be. A large part of your creditworthiness is the responsible use of credit over time.

Diversity of credit accounts.

Having several different types of credit accounts in use will give your credit score a chance to go up, which will help you get rid of your bad credit score.

Why You Have a Bad Credit Score?

Your financial habits could affect your credit score, and undoubtedly all people who have bad credit scores are eager to get rid of it and get away to improve your credit. It is understandable since a good credit score is not only crucial to accomplish their financial goals but also their dreams. Technically speaking, there are several horrible mistakes that you are making that could lead to bad credits, and they could be avoided:

You’re having a bad credit score because you are missing or making late payments

Whether you are a business person or someone who takes care of household bills, you must manage your finances in such a way that you could be able to repay the money you are owing at the end of the debt cycle. The most important thing to avoid bad credit is to make sure to keep the number of monthly bills separate from your budget so that you have a fair idea of what other things you need to take care of. The truth is that your credit history tells a lot about you as a person. If you are someone who is often struggling at the end of each month due to bad debt management, it is time to buckle up. Paying your credit card bill on time means that you are saving yourself from the hassle of being on the negative side of the income statement.

Bad credits also comes from overspending

Educate yourself on the value of mindfulness when spending. This will give you a fair idea about the meaning of bad credit and all that you can do to avoid it. By paying attention to what you’re buying, you can understand the true meaning of unnecessary spending and finally avoid it. Eventually, you will be able to kick bad debt to the curb and avoid bad credit that you don’t want.

Applying for too many credit cards within a short period

This is a mistake many people tend to make. Whether they are tempted by the benefits provided by the credit card agency (cashback on purchases, accounts opening gifts, etc.), or they simply want to cover other debts with a new credit card, they could get themselves in trouble before they know it.

Is a bad credit score affecting your personal life?

The answer is an absolute yes! There is no exaggeration to say that, the credit score is the backbone of your personal financial life, which can influence every single aspect of your financial actions, including:

Getting approved for a loan you need to cover the cost of something important.

With a bad credit score, you will experience difficulty getting a loan application approved, you should apply for bad credit loans through other lenders to qualify for a better rate.

Getting approved for financing for your dream home or vehicle.

Qualifying for a low mortgage rate will be very difficult if you have bad credit. Some you are even unable to get a loan just because of your bad credit. You should work on improving your credit score before seeking a mortgage in order not to let yourself down.

Renting an apartment.

A bad credit score may decrease your chances of getting a rental application approved, especially if you’re trying to rent in a competitive housing market. Landlords may reject your application and you will miss the apartment you like,

How to Improve your Credit?

Here we have several tips for you to improve your credit score up above an average level and keep it there.

Set up alerts for Credit card paybacks

This is very important for people who are extremely busy and sometimes forget about their various credit card due dates. Setting up alerts could help you remember how much money you are still owing and pay them back without unnecessary delays.

Make downpayment for Credit card debt

Sometimes you are probably having financial difficulties which could be conquered in a short period, this down payment for your credit card debt seems to be a good option for you to keep your credit score from going down.

References:

https://www.investopedia.com/terms/b/bad-credit.asp

https://loanscanada.ca/credit/what-is-bad-credit-and-how-do-i-fix-it/