The risks you face when making financial decisions can greatly affect your financial future. If you like risks, you’ve probably already used a line of credit, a loan, or any other form of financial product. However, if you are risk averse, you have probably avoided them, resulting in no credit history or a clean credit record. It may be assumed that you have never borrowed money or experience debt repayment, and by doing so have done nothing to establish a credit history or prove that you are responsible financially. With regard to loans and credit, potential borrowers who already have a credit history are much more reliable and their approval rate is often higher. Many believe that it is more problematic to have bad credit than no credit at all. While bad credit is not ideal, experience is important and it is an index of knowledge, knowledge and potential.
Bad credit is not the end of the world
Those who have used lines of credit, loans, or have credit cards, understand the repayment process and are used to working to pay off debts. Bad credit gives institutions a substance to build on, including tracking people’s habits and financial decisions. A credit history includes past payments, late or partial payments, past debts, if you stand too close to your credit limit, if you have borrowed a lot of money, if you have declared bankruptcy or made object of a seizure. The use of this information allows financial institutions to analyze people’s behavior and draw conclusions based on past actions. If you have a history of negative payments, your credit rating will be lower, and vice versa. However, even with a low credit rating, creditors always take your habits and your credit history into consideration and see this information with a positive eye. Although you may receive a less favorable interest rate, you will still qualify for a loan and may be approved.
No credit history, no material to rely on
A blank credit report implies that there is nothing to rely on. You have never borrowed money and have never had a credit card. By being careful and avoiding any credit, there is no proof that you can repay a loan on time or simply make a refund. This lack of experience creates an important issue for creditors, due to the lack of information to assess whether or not you can be trusted with any type of loan. Thus, a lack of experience can be as bad or worse, bad credit in itself. With no material as proof, not having a credit history can diminish your chances of getting the loan you would need.
Improve or build your credit
Building a positive credit record is imperative in order to qualify for a loan or mortgage in the near future, especially if you want to take advantage of an attractive interest rate. If you do not have a credit history or only a brief history, here are some simple steps to follow to improve it:
1 Ask for a credit card from your bank and use it regularly, while making your payments entirely before the deadline (and do not use all your available credit). If you can not be approved for a “regular” credit card, apply for a “secured credit card”.
2 Check your credit by requesting a copy of your credit report and credit rating from one of Canada’s two credit reporting agencies, TransUnion or Equifax .
3 Do not apply for several new credit accounts at the same time and do not close your old ones. This will lower the average age of your antecedent (the longer a credit account is opened, the better your overall rating will be).
4 Consider applying for a different type of credit account, for example, a personal loan or even a line of credit. Having in your possession more than one type of open credit accounts helps to improve your credit rating. Just be careful about using all your accounts responsibly.
5 Finally, if you feel that you can bear this responsibility, consider increasing your credit limits. This will lower your debt-to-credit ratio (the number of debts you have compared to your available credit amount) and will impact your financial health.
If you currently have bad credit, here are 5 steps to improve it:
- Pay any bills that are pending payment
- Then be sure to always make full payments to date
- Take care to reduce your due amounts to reduce your debt-to-credit ratio
- Process any accounts that may be in the hands of collection agencies
- Stop using your credit card until your debts are under control
Generally, we all come to a point where we need to sign a loan, so why wait? The longer you use credit, the better your rating. Thus, starting early and climbing the ladder quietly and surely will only be beneficial in the future. Overcoming your debt will take time and effort but will not go unnoticed. With the mix of a good credit rating and an antecedent, any loan you would like to apply to can be approved with the best interest rate.