Bad Credit is a state of being a person with a “high credit risk.” It means that the person who has bad credit has a higher possibility of defaulting or missing his payments, especially in his credit accounts or loans. “Bad credit” means that a prospective borrower is “bad news” to a possible creditor or loan agency: this negative state of his credit score indicates that he may miss payments, and he may even default on his loan.
To give you a more official definition of what is bad credit, here is Investopedia.com’s version:
[Bad Credit is] “…A qualification of an individual’s credit history that indicates that a borrower carries a higher credit risk. A low credit score indicates bad credit, while a high credit score is an indicator of good credit. Creditors who have lent money to an individual with bad credit face a higher risk of that individual missing payments or defaulting.”
Being in bad credit therefore means that:
- You may have a harder time applying for new credit cards.
- You will have a harder time getting approved for an auto loan.
- You may have a harder time getting approved for a mortgage loan.
- Your interest rates could be higher.
- Your loans, if they do get approved, may have other features that may give you difficulties, over and above the higher interest rates.
Being in bad credit may also mean that you have high debts including existing debts that you need to pay off. And you may even be thinking about securing a loan for yourself in an attempt to rid yourself of that bad credit rating. Debt consolidation means putting all of your debts in just one account, which makes things easier to pay off in the long run. The thinking is by consolidating the bad debt with new credit it may help you.
The only thing you need to do, then, is to figure out how to get approved for a loan, in spite of the fact that you know a bad credit score is where you’re at, at the moment.
Here is a way that you can neutralize your state of bad credit, in order to regain your good credit history:
Step 1 -Know what a bad credit score is – As they say, “Knowing is half the battle.” When you know what you’re up against and how far you have to go, you will at least have an idea how to “attack” the fact that you are in a state of bad credit. It may dampen your spirits if you know that you have a long way to go, but you can then break down your seemingly insurmountable task into “doable chunks” of which debts to repay.
Step 2 – Arrange your debts – Whether you will choose to repay those with higher interest first or those with the lowest amounts first, it’s really up to you. The point is that you have to start somewhere. Starting from the high-interest debts will help ease your burdens, fast, especially since high interest rates will only make your debt burdens heavier. But starting from the lowest amounts first will help encourage you to keep making progress with the debt repayment process.
Step 3 – Go ahead and obliterate your debt! – Now that you have a plan, you can now start getting rid of your debt and work towards changing your credit history.
An even easier way to attack debt would be to just get another loan, pay off everything else and then just work on repaying the latest, debt consolidation loan. However, do take note that:
- Your loan may not be approved easily.
- You may take a risk of paying higher interest rates.
- The higher amount may discourage you from the debt repayment process.
Your status may not always seem bleak however. Your tides could actually change and:
- Your debt consolidation loan COULD get approved.
- The interest rates COULD be fair for you.
And with that, you could probably keep pushing yourself to work towards neutralizing your debts. Either way, it is always about weighing your options.
Being in a state of bad credit does not need to be a death sentence. You can and will eventually climb out of it. Then, you can and will be able to overcome that state. Instead of looking at the seemingly-insurmountable task, motivate yourself by reminding yourself that being in a good credit standing again will open doors for you. You will be able to finally get that mortgage loan and get yourself your dream home; you will be able to change your car thanks to a new auto loan being approved, and other benefits. Remember also that to move out of bad credit you may need to rack up new credit points through showing a capacity to pay in your credit history. For this matter, you may want to use a secured credit card and work on being able to pay on time, all the time. From knowing what bad credit means to being able consolidate bad debt with new credit isn’t the end of the world, you should know that YOU CAN DO IT!