Maintaining a good credit score is ideal, but sometimes, life doesn’t work out the way you plan it. Emergencies happen, so you may find yourself incurring debts just to stay afloat. However, the downside of this short-term solution is that in the long run, your credit score suffers. But with a debt consolidation or bad credit loan, you can save your credit score before it’s too late.
The role of credit scores
Created by Fair Isaac Corporation, the FICO score range measures credit based on the consumer records kept by Experian, Equifax, and TransUnion, the three national credit bureaus of the US. Most banks. money lenders and other financial institutions check your FICO score to decide whether or not to grant you credit.
Credit scores usually run from 300 to 850. Most people have a credit score from 600 to 750. According to Experian, a credit score of 800 to 850 is exceptional, 740 to 799 is very good, 670 to 739 is good, 580 to 669 is fair, and 300 to 579 is bad. As many as 16% of the US population has a bad credit score.
Financial behaviors determine credit scores. Making late or insufficient payments and missing payments completely have the biggest impact. Having an overdue account transferred to a debt collection firm and applying for credit too often also cause credit scores to drop.
The widespread effects of bad credit score
The problem with a bad credit score is that it’s a major obstacle to your financial goals. You’re perceived as a high-risk borrower, so in many cases, you will be rejected when you apply for credit. If you do get approved, you can expect much higher interest rates, which result in monthly higher payments. Loans will be much more expensive for you.
Even other aspects of your life that are not directly related to your finances are affected. Your rental applications for an apartment are likelier to be denied because landlords want tenants who have a history of being good payors. Your choices are limited, and you’ll also pay a higher security deposit once you find a landlord who’s willing to let you rent their place. The same goes for utilities like electricity, water, and internet. It doesn’t matter if you’ve always paid your bills on time. You’ll still have to pay a security deposit upfront to give providers the assurance they need.
It’s never a good idea to let a bad credit score become worse. Fortunately, there is a way to clear your debts and improve your credit score, and that’s by getting a debt consolidation bad credit loan to pay off all your other debts.
How debt consolidation bad credit loan works
With debt consolidation, your current loans are combined into one big loan. After doing so, you only have that loan left to make monthly payments on. You directly pay the organization that granted you the loan. Banks in general and debt relief companies in particular offer this loan as a service. Because it is a service, it comes with high interest rates. Thus, it’s important to make your payments on time and in full to avoid paying additional interest rates.
Note that it doesn’t reduce your debts. It simply makes managing them easier. When you have to take care of several debts separately, you may forget about one loan’s due date and miss paying for it, or mix up the payment amounts and end up underpaying some of the loans.
Consolidating your outstanding debts is the first step toward saving your credit score. The real solution is developing good financial habits that can establish you as a low-risk borrower. Thus, it’s best not to get other loans and not to use your credit cards while you’re still paying for a debt consolidation bad credit loan. You don’t want to restart the cycle of unsound decisions because they can easily snowball once again.
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