A clean credit history guarantees future finance such as loans, should you ever need one. What is more, a bad credit history will definitely be a hindrance or a guarantee for you not getting a loan, or even if you do, you will be expected to pay a high rate of interest – and all because of your bad credit history. So, it is important for everyone to understand the benefits of maintaining a clean credit history.
How credit goes bad
Credit goes bad thanks to bad financial management. Bad management of finances stems from indiscipline and a lack of knowledge of accounting. Now, no one expects you to be a wizard at accounting – cooking the books and all! But you should at least know how to make a simple household budget and have the discipline to stick to it. In most cases, credit begins to take a turn for the worse with payments of credit card bills being skipped. Credit cards are the easiest to get and most convenient source of cash, and if they are repaid in time they can be a source of very cheap instant loans too! However, skip one payment and you not only end up paying a very high interest along with a fine, but you also mess up your credit history.
Credit card companies waste no time at all reporting a missed or delayed payment to the credit bureaus. They don’t, however, pay as much diligence to payments you make towards outstanding debt. This is one reason it is important to keep card payments up to date to prevent them reporting the matter to your credit bureau.
Other sources that can mess with your credit history include: Mortgage companies, vehicle loan companies, banks and even realtors who mediate your apartment rental. In some places even the utility services can report missed payments to credit bureaus. With each incident of a late or missed payment being reported, your credit history goes from bad to worse and the reasons for the missed payments are not even heard.
How does this affect you?
When you apply for any kind of loan – whether they’re personal cash loans, small business loans, short term caveats or even debt consolidation – the lender will access your credit history online because they have an arrangement with the credit bureaus. If they see that you have not been repaying your past line of credit they will know that your creditworthiness is questionable. This will make them take one of two decisions. First, they may just decide to steer clear off of you and reject your application for a loan outright, or they might decide to take the risk and lend you the money but they will charge you an arm and a leg or perhaps your first born as interest.
On the other hand, if they see that you have been a good paymaster and have paid your past debts on time, they will definitely approve your application without any delay and even offer you the most competitive rates of interests in the market. So, a clean line of credit guarantees you a loan and that too at the normal rates of interest!
What to do if you have a bad credit history
If for any reason, you have developed a bad credit history you should immediately resort to credit repair action. This includes cutting back on expenses, concentrating on repaying outstanding debt and scrutinizing your credit report for errors and make sure that each payment of an outstanding debt is reported to the credit bureaus. This will repair your credit history in time and you will be creditworthy once again and eligible for future loans. However, one must remember that prevention is better than cure!