Credit is the trust that allows one party to provide goods, money or other resources to another party who will then reimburse the first party at a later date. It is all fun until one fails to meet the repayment terms and it degenerates into a cycle of bad credit.
There is debate the world over on the need for credit, and a good credit rating, in the first place. As is common with many things, there are good and bad sides of getting credit, with a good rating to match, to fuel your expenses.
Causes of bad credit
A bad credit rating can cause one to be refused as a customer due to their high-risk nature. Some bad behavior’ in managing finances and credit cause one to have bad credit ratings. They include:
- Failure to stick to initial credit agreements; late credit card or loan repayments, failure to make the scheduled repayments.
- Bankruptcy; financial institutions will shy off from dealing with you.
- Minimum payments on credit cards; financial institutions will assume you are struggling to clear the debts.
- High levels of existing debts.
- Mistakes on your credit report; bad reviews when it does not apply to you
Ways of improving credit scores
Several factors of a credit card count in affecting your credit score; payment history (35%), credit utilization (30%), length of credit history (15%), types of accounts in use (10%), and new credit (10%). There are several ways that one with a bad credit rating can do a credit repair:
- Pay your bills in full each month; settle all the credit card debt each month to be free of outstanding debt.
- Use the credit cards for routine purchases; routine purchases like getting fuel and buying stuff at the departmental store can be done by using the credit card. Make it a routine and make sure to settle the bills at the end of the month.
- Make arrangements early enough to alter the repayment terms to a level you can afford.
- Try larger, long terms debts as they give great credit scores than the small, short terms loans with less interest. Higher and long terms debts motivate the financial institutions as they know they will earn more on interest, consequently increasing your credit rating.
- Urge to be told the reasons why you have been refused credit then work to improve on it.
Importance of credit rating repair
Much good accrue after a credit rating repair. They include:
Better rental terms; a good credit rating offers you the privilege of paying less on deposits on rents, mostly on the higher end housing. Landlords do a credit rating check on the potential tenants and form their decision based on this. A bad credit rating means a higher deposit requirement to curb defaults.
A good rating helps to get employment; many employers run credit checks on potential employees and also require them to submit proof of servicing their current debts. A good credit rating helps one gain employment as compared to those with bad credit rating who are considered risky for the job.
With a good credit rating, you can afford better insurance rates; insurance companies rely on the credit scores of their customers to fix their premium rates. The higher the credit scores, the better your insurance premiums on auto, homeowners and life insurance. Those with poor credit scores get to pay higher premiums as they are considered riskier.
Good credit rating lowers the interest rates to be paid on credit; a good credit rating earns one the privilege of paying less interest on loans and other forms of credit. A bad credit score, on the other hand, makes one have higher interest rates fixed on their loans and other forms of credit hence being expensive in the long run.
It also reflects a healthy financial reputation. This serves to improve the credit scores of an individual and also a firm, hence getting loans should be much easier.
There is a better chance for credit card and loan approval with a good credit rating.
It will be easy to get approved for higher limits with a good credit rating.