April 6, 2008
Do You Have Bad Credit: What Are Lenders Saying About You?
What is bad credit and how does it affect you? Bad credit is a credit history in which you have negative factors on your credit report. There are three credit bureaus in the United States which handle most of the inquiries by lenders. These companies are Experian, Transunion, and Equifax.
Each of them is working for lenders and with lenders, not really with you. Their goal is to keep a record of the credit activity that you have. They don't care if you have good credit or bad credit, as they are simply the reporting agency.
Whenever you apply for any type of loan, lenders want to know about you as much as they can. They want to see what type of credit history you have, so they call on these bureaus which give them a copy of your credit history, or all the transactions you have had over your lifetime. The lender will then be able to make a decision regarding whether to loan you money or not, based on the past history you have.
If you have bad credit, chances are good they won't lend to you. If you get into the new loan, the lender will monthly report back to the credit bureaus your credit activity. This helps the lenders work together to know which borrowers are good investments and which have bad credit, unworthy of additional lines.
What Are Lenders Looking At?
Credit card lenders, home mortgage lenders, personal and small business loan lenders…each of these lenders is interested in the way you handle the credit you are given. You may have bad credit if you don't handle it well. They are looking for:
- Do you make payments on time every month?
- Do you skip payments or not pay the whole amount of money that you owe?
- Do you pay just the minimum amount or do you pay more?
- Do you take your obligations seriously; especially asset based or secured loans such as your mortgage and car payments?
- How much debt do you have?
- How much experience do you have with managing debt?
- Do you use credit? (You can be faulted for not using your credit, too.)
While each lender has very different criteria in place for lending practices, most of the time, they don't want to look at your report indivdiaully. They want a hard number that shows them if you have good credit or bad credit. Therefore, the credit bureaus give you this number, based on the culmination of all the facts in your credit history. This number is your credit score.
How Credit Scores Are Calculated
The method by which credit scores are calculated is a highly guarded secret. The credit bureaus do not have to tell you this and they do not. They want you to earn credit by using it wisely. If you get into the process of having a bad credit history such as failing to make your monthly payments on time, your credit score goes down. There is no set limit in terms of how high or low the numbers can move for each move you make.
You have bad credit if your credit score is low. Credit scores range from 350 to 800. Generally, you have bad credit if your score is below 550, but the credit bureau does not say you have bad credit. Rather, each lender makes their own decision about what is considered bad credit.
If you haven't done so yet, do get a copy of your credit report and pay for a copy of your credit score. These numbers really define your financial situation.
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