Understanding bad credit

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The majority of people associate good credit or bad credit, with their credit score. This magical
three-digit number which ranges from 300 and 850 renders an idea of an individual's handling of
their debt obligations.

If you have have been unreliable with credit repayments your name is muddied by a numerical
score of 675 or lower. That is, in principle you epitomise bad credit (bad for business), and no
one in their right minds offers you a credit line.

Credit history or credit report is therefore employed to mirror a track record of an individual's or
company's previous borrowing and repayment habits. And such reports fundamentally include
information relating to late payments and bankruptcy cases. Another term linked to aspects of
credit history or credit score is credit reputation, whether good or bad.

It is no secret that if you want to avoid bad credit, you simply must pay your bills on time, every
time. And credit score is basically in the context of the length of time you held credit, the forms
of credit used (credit card, mortgage, etc), amount of credit utilized in comparison to amount
available, among other things.

Credit ratings differ between various scoring models, but in the main the FICO scoring system
constitutes the standard in United States, Canada and other jurisdictions.

Recorded instances of bad credit omnously follow the subject like a bad smell by making it hard
for one to secure a credit card, mortgage loan, a vehicle loan or a student loan. In the event that
you manage to gain access to a loan or a credit card, your bad credit translates to higher costs
of borrowing in the form of inflated interest rates.

An additional element in influencing lenders to issue a credit or a loan is dependent on income.
Hence, the higher the income (and in the absence of bad credit reports), the higher credit the
loan applicant is capable of accessing. Thus, regardless of how much you earn, lenders still rely
on both ability to repay (income) and willingness (creditworthiness as determined by credit

Such factors assist lenders to make informed decisions on whether to extend credit, and on
what terms, thus minimize the risk of losing their funds as a result of bad credit.

The credit report now plays a pertinent in ascertaining the annual percentage rate (APR), grace
period and various contractual obligations in relation to the credit disbursement. This is typically
in line with the adoption of risk-based pricing on virtually all lending transactions carried out in
the financial services industry.

Bad credit of others inadvertently created a vibrant industry of credit rating agencies that collect
and use an algorithm based system to offer their clients (lenders) credit history information
about loan applicants.

For businesses that negate on their financial obligations, whether they emanate from corporate
loans taken to subsidize their operating capital or unpaid bills to suppliers. Such bad credit
instances can come back to haunt them by stifling their operational plans, as they will fund it
difficult to secure much needed funds for critical business activities.
Bad credit information travels fast and often precedes the reputation of an entity, and such bad
reputation extends through to non traditional financing sources, such as angel investors. Thus,
effectively throttling expansion or related plans of a commercial enterprise.

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