What is Credit Score?
To check your credit worthiness your previous credit information is checked. A low credit score puts you in the category of bad credit.
The Factors that Determine One’s Credit Score:
- Payment History- Number of defaults, late payments, timely payments, etc. all these play an important role in deciding your credit worthiness.
- Current Due Outstanding- How much you owe currently is also checked by the lender to assess will you be able to pay their loans overdue on time or not.
- Credit History- Longer credit history makes it easier for the lender to assess you better by inquiring into your total credit activities. People with zero or no credit history fall short on this parameter.
- Credit Mix- Having credit in different areas such as mutual fund, saving, stock, etc. indicates your ability to manage your financial responsibilities.
- New Credit Enquiries- Anybody who is applying to multiple credit loans reflects their instability and in excess of liability than assets, thus impacting your credit performance.
Various credit score tools used world over are- CIBIL, Experian, Highmark, etc.
Loaning on Bad Credit:
Even if one figures into bad credit list that doesn’t mean they can’t borrow money. However, these loans typically have more obligations such as higher interest rates, greater restrictions and so on. This way, the lender covers for high risk involved by them.
There are various types of bad credit loans one can opt for to get excess to credit and also improve their credit rating:
- Secured and unsecured loans- If you have small default, you can opt for unsecured loans because there is low possibility of you defaulting. However, if there are many previous outstanding, you should opt for secured loans by put any of your assets as collateral.
- Guarantor loans- Someone from your family or close friend may sign up for being the guarantor on your behalf in case you fail to repay.
- Debt Consolidation Loan- In this case you compress your multiple loans into a single loan thus simplifying your repayment.
- Credit Union Loan- Various SHGs, co-operatives vouch for collective owning for loans. Lenders prefer group loan over individual because risk is distributed. However, credit unions may have certain criteria to membership such as- only women, only senior citizens or only farmers, etc.
Now that you are aware of what bad credit is and how one ends up in being a bad credit using various credit scores, it will be easier to find your way in getting a loan under bad credit loans.
