Responsible consumers are everywhere. Unfortunately, bad credit is everywhere too. And sometimes, the two meet in the most unexpected ways. You’re very responsible with personal finances. So your credit rating should be excellent, right? Then why do so many responsible consumers have bad credit? They may not know some of the causes. Read on to learn about the causes of bad credit – some you probably already know, and maybe some you didn’t.
Late or Missed Bill Payments
All right, you probably knew about this one. The single most obvious reason for consumers developing bad credit is late or missed payments. We’ve probably all forgotten to make a payment at one time or another. Did you fall into the trap of thinking that one day late is not that bad? If this situation is repeated over and over, be aware that those payments that are just a little bit late will still contribute to a bad credit rating.
Too Many Credit Card or Loan Applications
Even the most responsible consumer can ruin their credit rating by having too many credit cards and credit card loans. Consumers with lots of room for overspending are considered higher risks. That’s because the more debt they’re allowed to rack up, the more difficult it is to pay it down.
Simply applying for a lot of credit cards can count against your credit score, because it’s possible you might be approved for all of them. Lenders like to imagine you’ve spent the limit on them all when the unthinkable happens; you lose your job. Lenders have to think of the worst-case scenario.
If you have a lot of credit cards, you might consolidate your debt by applying for credit card loans when promotional interest rates are offered. But pay close attention to the date the low interest rate changes to a higher one. Try to ensure you can pay off the credit card loan before that date so you don’t pay higher interest than your original cards.
Even when your job is secure, having too many credit cards encourages overspending, with the risk of your good credit turning bad. Keep the lenders happy when they check you out. Limit yourself to one or two credit cards, don’t make a lot of unnecessary loan applications, and keep a lid on overspending.
Having No Credit History
If you’ve never had a credit card, or held a mortgage or loan, it’s possible that you have no credit history at all. To earn a good credit score, lenders like to see a consistent pattern of paying off debt. With no history, lenders don’t know if you’re a good risk or not. Maybe you don’t have bad credit, but neither do you have good credit, so it can be difficult to qualify for a loan if you have no history.
The good news is that you have a clean slate, and it’s a great opportunity to build a positive credit history. If you’re sure you can pay it off over time, it may be worthwhile taking out a small personal loan to help with some expenses and build a good credit history.
Too Many Pay Day Loans
While payday loans might get you out of a difficult situation until you receive your next pay cheque, it’s important that you don’t rely on them. The cost of payday loans is an enormous drain on your finances and should be used sparingly or not at all. If you rely on payday loans frequently, you may be spending hundreds of dollars you don’t have. This will just make it even more difficult to pay your bills on time, possibly resulting in a bad credit rating. Those who already have bad credit might be better off with bad credit loans offering lower interest rates and longer terms to pay.
Maxing Out Or Overspending Your Credit Limit
Some people think that overspending their limit is okay as long as they faithfully pay the amount due on time. They may think that when one credit card is maxed out, they can simply switch to another and keep spending without a problem.
However, think about it from the lender’s perspective. When they see a consumer in this situation, they see them as being up to their eyeballs in debt. One small emergency could put them into default on a payment, so they are a higher risk. And high risk equals a bad credit score.
Allow a little room for error. Don’t stretch your finances to the limit. Try keeping your balance at less than 30% of your credit limit to show you are not a risk.
Do you have difficulty qualifying for a loan? Did you know that lots of people with steady incomes still qualify for bad credit loans? Consider applying to Magical Credit. For more information, call Magical Credit at 855-789-0482 or fill out our online application today.