TMCnet Feature
May 06, 2020

What are the implications of bad credit?

Like millions of people worldwide, if you have been unfortunate enough to experience bad credit, but need to know how to cope with it or find out what you can actually borrow from a lender (whilst at the same time staying on top of your finances), you might want to carry on reading.

What Is a Bad Credit Score?

Did you know that your credit score is actually a three-digit number? It’s derived from a computation based on the data in your credit report and is usually between the values of 300 and 850 (when something called the FICO score is used.) Lenders use this number to predict how likely you are to repay the funds lent to you. A score of 700 or higher is considered by many lenders as a good credit score; 800 or higher is considered as excellent and low risk. But if your score falls short of 700, then it is less attractive to lenders from a risk perspective.

A score between 300 and 579 is considered poor. This may be as a result of missed payments on credit cards or other form of credit agreements in the past, or simply because there is not enough credit history on file – which is why young adults will often find that their credit score is low by default and lenders see them as high risk.

High income earners can still have a bad credit score, if they don’t make payments on time. This can still cause wealthy people a problem if they need credit.

Psychological Effects

Some of the consequences of a bad credit score can be psychological, not just financial. Reports of anxiety and depression are commonplace and, for some, there is a strong reflection of credit score on personal self-worth. For some people who have lived most of their adult lives in some form of debt, a low credit score can hang over them like a cloud and can create the perception that their very basic needs are under threat.

What is a bad credit loan? 

Just because you have a bad credit score, it doesn’t mean you are completely written off, from a lender perspective. There are still financial products that may be suitable to you and your circumstances.

A bad credit loan is a financial product with people who have a low credit score or a poor credit history in mind, who may have been denied a personal loan by their bank or other high street lender. Bad credit loans may well be a suitable option for people aren’t yet considered eligible (such as young adults) for a personal loan from a mainstream lender but find themselves in a situation where they need some extra cash (perhaps to purchase a car.)

Eligibility for bad credit loans

To apply for a bad credit loan, you will still be required to meet a number of criteria with your lender. Most, if not all, will require you to be at least 18 years of age and a resident of the country in which you’re applying for the loan. Most will require you also not be bankrupt, and have evidence to show that you have an income stream – enough to pay off the loan and afford the necessities for living – an affordability check is normally conducted to make sure that you have enough income to cover all your expenses. And bear in mind that a bad credit history can suggest financial mismanagement, this process may well be quite intrusive. You will also need to prove that you have access to a bank account, because fit’s from there where your payments will be collected.

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