The ABC’s of Bad Credit

We all hear the words “bad credit” from time to time, and while some people may be aware of its implications, a majority might be wondering what it entails. The term bad credit is sometimes used together with other words that mean the same, such as poor credit, low credit, and even adverse credit. One may even come across a lot of advertisements which feature bad credit loans, and these are where “bad credit” appears most often.

So what does bad credit mean exactly? To start with, the term credit means using other people’s money, like when you take out a loan, for instance. If a person has bad credit, this signifies that they are bad creditors. Bad creditors are people who borrow money and end up not paying the debt, or being late in making payments. And who is responsible for determining whether a person does or does not have good credit? The credit rating agencies do. These companies evaluate a person’s ability to make payments on loans based on information they get from lending institutions. These agencies are responsible for determining a person’s credit worthiness.

To make the long story short, credit rating agencies turn out credit reports on people as a basis for their eligibility to obtain credit. Lending institutions tend to steer clear of people with a negative credit rating because of their history of being not paying their loans, or being late with payments.

There are some instances when a people get bad credit ratings due to ignorance, or of being unaware of the causes of bad credit. One example can be seen in credit cards. While some people are prompt in paying each credit card bill as it becomes due, there are still some who do not realize that not making regular payments on their credit cards will get them a bad credit rating. Pretty soon, the debt builds up to a point that they establish a bad credit history.

Credit rating agencies have access to a whole range of data and the reports they turn out are very accurate to the last detail. A credit report will contain all aspects and information about all the credit and financial transactions a person has made. These records include a history of all payments made, credit limits on all credit cards, methods of recovery that a person used to settle debts, and all the balances on every outstanding loan that currently exists.

From all this information, a money lender evaluates whether a person is worthy to be given credit or not. A credit rating report assigns a credit score to each person based on their credit history. This credit score ranges from the lowest score of 300 and a high rating of 850. People who have a score that falls below the 500 mark are labeled bad creditors. These people will have limited access to credit and usually resort to taking bad credit loans when they need money.

In the United States, everybody has the right to obtain their credit reports and know their credit scores. Laws have been passed to ensure that the information and process that goes into creating credit reports is correct and fair. All a person needs to do is make a request for a report of their credit history and one will be delivered each year. Having a current credit report on a yearly basis will help people determine their credit rating, correct any errors that appear, and improve a bad credit rating through better loan payment habits.

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