It is common knowledge that the state of our credit is what determines whether we are able to apply for (and take out) a loan with a lender. There is a huge difference between good and bad credit. Understanding it can make all the difference to your lending life. Here we are going to highlight what makes up a positive credit score. The sooner you learn how to keep a healthy score, the easier it will be to take out loans.

What Is Credit?

The first thing we need to look at is arguably the most important. This is looking at your credit score. Which is a number that reflects how reliable you are to a potential lender.

If you have a low credit score, it means a lender is less likely to take a chance on you. If they do, they are likely to charge you a higher interest rate, as you are considered high risk.

With a high score, it means your chances of being able to take out a loan are much higher. Your interest rates also won’t be as high. This is because your score reflects you are good with money. Therefore, you are likely to pay back the loan, meaning you are considered less of a risk.

Put simply, this is the difference between good and bad credit. But let’s look into what makes up your credit rating to understand it better.


What Makes Up Your Credit Score?

This is determined by a number of different factors. Here are some things that affect your credit score and can lead to you having a bad rating:

  • The amount you owe: if you already have a number of loans or credit cards with money owing on them, this is going to factor into your score. Try paying back some of these first before applying for a loan.
  • Late or missed payments: if you have missed or make late repayments on your current loans or credit cards, this will also affect your rating. It suggests you are living beyond your means and potentially don’t have the money to pay back the loan. This will make future lenders less likely to take a chance on you.
  • Credit history: this looks at how long you have had loans for. The more experience you have in taking out loans and repaying them, the more likely a lender is to take a chance with you.
  • Credit inquiries: Each time you submit an application for a loan, an inquiry is placed on your file. If you are genuinely shopping around for the best deal on a loan, the best thing to do is make the inquiries in a short space of time. This will then just count as the one inquiry.
  • Credit ratio: If you have a card that allows you to borrow $10,000, and you are using that full amount each month, this means you have a high credit ratio. This will make lenders less likely to take a chance on you. You want to keep a low ratio so that repayments are easier and you aren’t using up all credit available to you.

Difference Between Good and Bad Credit

All of these factors determine whether or not you can take out a loan. You can see now why lenders are less likely to take a chance on someone with a bad credit history. Your score reflects how you have dealt with money in the past, and if it’s low, it indicates that you are unreliable.

This doesn’t mean you won’t be able to take out loans. It is more likely you will end up paying a higher interest rate when you do. This can ultimately lead to you getting into further debt and lowering your credit score even further, which can make it much harder to change things around.

Are you in a bad financial position with a damaged file? You can make changes to turn it around and get yourself back on track again.

If you are looking to change your bad credit to good credit, try these tips:

  • Pay your repayments on time.
  • Pay off your debts! If you have too many debts, it’s a good idea to pay the current ones off before even considering taking out a new loan.
  • Lower your credit utilisation ratio by using less of the money on your cards each month.
  • Make any inquires in a short space of time.
  • Ask friends or family for help in paying off any debt.

If you still need help, contact the professionals at Bad Credit Loans. We can provide the support you need. Whether that be advice or financial assistance, we are here.


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