Most people do not know this but a bad credit score can return to haunt you when you least expect it, or want it to. In fact, most people are blissfully unaware that such a thing as a credit score exists at all! Nevertheless, a bad credit score can be quite the troublemaker when one needs financial help and approaches lenders for the same. Let us look at a credit score, how it develops and how it affects you.
What is a credit score?
A credit score is a three-digit number that is calculated based on all credit activity. This score is calculated and maintained by the credit bureaus, in your area, of which there may be more then one. Finance establishments such as banks, private lenders, financial institutions, credit card companies and in some states even utility companies report their financial dealings with you to the bureaus. They report all monies you borrow from them to the credit bureaus on a monthly basis, the repayments you make and the times you default in making a payment or even when you make a late payment. The problem is that they report delayed and missed payments more diligently than they do timely repayments.
The bureaus calculate your repayment activity and arrive at a score that describes you as a good, fair or bad paymaster – in short, your credit score tells a borrower whether you are credit-worthy or not. Naturally, if your repayment history is not attractive no lender will want to deal with you. However, if despite a bad credit score a lender wishes to take the risk of lending you money it will be at a very high rate of interest.
So, there it is in a nutshell. Each time you delay repaying a debt such as a credit card, utility bill, mortgage, car loan, personal loan or just abut any kind of credit repayment, it will be reported to the credit bureaus and your score will go from bad to worse and you will find it more and more difficult to get any kind of a loan in future – even finding an apartment on rent could be a problem in some states.
Repairing a credit score
All is not lost, however. Should you find that you have a bad credit score, you are not stuck with it forever. There are ways to repair a bad score. This may be a time consuming process that may last from a few months to a year or more depending on the severity of the damage. Financial professionals have many a trick up their sleeves that they use to help repair a credit score. A couple of their favorites are debt consolidation loans and bad debt credit cards. These professionals usually take over the entire outstanding loan amount and work with you to repay the loan over a period of time leaving you with enough money to run your household and even put some cash away for a rainy day.
So, as the old ad-age goes, “ prevention is better than cure” it is always advisable to avoid a bad score by paying your debts on time. But if you are in a stew, all is not lost. Look for ways to repair your bad score – and there are plenty of ways.