Common Reasons for Bad Credit
Many people have a bad credit score – often without even knowing it. A bad credit rating can have adverse effects in many cases, which is why efforts should be made to improve them. Go through this latimes article for a list of the best credit repair companies to help you in such a situation.
The score indicates a person’s creditworthiness and calculates the risk of payment default based on various data. Creditworthiness is often determined by banks, lenders, or credit agencies. A bad credit rating has a negative influence, especially when looking for a loan, but also in more everyday situations such as online shopping or when concluding a mobile phone contract. Here you can find out the most common reasons for bad credit and what you can do to improve bad creditworthiness!
Overdraft Facility
A high overdraft facility counts as a vote of confidence on the part of the bank, which rates your creditworthiness as good. However, if the overdraft facility is often maxed out and overdrawn, this can be a reason for a poorer credit rating. A low disposition framework also applies to credit agencies as an indication of poor creditworthiness. The credit agencies trust that banks can adequately assess the creditworthiness of their customers and orientate themselves accordingly on their judgment.
Too Many Credit Inquiries & Credits
In particular, multiple credit inquiries within a short period have a negative impact on creditworthiness. Frequent loan inquiries signal that the applicant is having a hard time getting a loan. Since the reason for this is mostly negative features at credit agencies, this leads to a downgrade of the credit rating.
Accumulating too many loans can also lead to poor credit ratings. Mainly overdrafts, 0% financing, and consumer loans are particularly tempting to consumers and are often concluded carelessly. If you have several loans, you quickly lose track of things, and payments are forgotten or cannot be covered. Accordingly, there are negative credit entries, and your creditworthiness deteriorates in these cases.
Expenses Higher than Income
Your financial situation also influences the credit check, for example, in the case of credit inquiries. If your monthly expenses exceed your available income, this can lead to poor creditworthiness. This creates the impression that you are careless with your money and that you are not in control of your finances. As a result, your score worsens, and you are either denied credit completely or offered on poorer terms due to poor creditworthiness.…
Some people have the habit of spending more funds than they have and assume they will pay back once they have the money. Let’s say that the payment will be made using their next salary. When that salary comes, they have less than their initial pay, yet still spend more than their salary again.
Once you get your credit card, it seems like you have “free” money because you did not earn the funds. People forget that they still have to pay back what they have used. If you use the funds as free money, you will pay for it with your cash. This habit can go on and leave you with debt you cannot pay, and it will reflect very negatively on your credit report. Your credit card is meant for emergencies only.
