Do you have a bad credit score? Many people around the world have bad credit scores, and it’s a common thing. But having a bad credit score can affect your creditworthiness, especially if the financial institution you are applying with checks your credit score. So, how bad can a bad credit score affect you and your daily life, and is there a way to improve it? And is a bad credit short-term loan in Canada a good choice? Let’s find out in this article.
What is a bad credit score?
Before deeming a credit score good or bad, you need to understand the fundamentals of a credit score. A credit score, as you know, is a three-digit number given to you based on your past credit history. Experian, Equifax, and TransUnion are the three most popular credit bureaus that prepare your credit report and display a number based on your credit history.
There are 4 main categories to judge your credit or FICO score.
- Having a credit score above 720 shows you have an excellent credit score.
- If your credit score ranges between 690 – 719, you have a good credit score.
- You have a fair credit score if your credit score ranges between 630 to 689.
- And if your credit score is below 629, you have a poor credit score.
Many loan lenders check credit score to determine your creditworthiness, and it’s a common practice that is being followed by many financial institutions nowadays. But a coin is always two-faced. If you can’t make payments for any reason, even if it is a genuine reason, it won’t be considered. As a result, your credit score can fall.
A credit score cannot always be a reliable factor to determine a person’s creditworthiness. So let’s talk more about the effects bad credit has on your creditworthiness.
Effect of bad credit on your loan
- When lenders see you have a poor credit score, your loan application will be rejected by them. If you still manage to get approved by them, the loans are offered at a higher interest rate.
- You may miss career opportunities. Many employers check your credit score during your interview. Why? Because they want to know whether a person they are hiring is capable of making the right financial decision or not. It is mostly checked where the position requires handling and managing money.
- Renting an apartment becomes difficult. Many homeowners or property management companies check credit scores and based on that, you may or may not be asked to keep a security deposit with them. You can still rent a house with a poor credit score, but it gets harder.
- Some states in the US provide protection against terminating basic utilities (gas, water and electricity), but some do not. And if your basic utilities are denied due to a poor credit score, then you need to submit security or a letter of guarantee to resume your services.
How to improve a bad credit score?
- Summarize your credit statement
Get a summary of all your credits and summarize them. Then, check your free credit score and what factor are impacting it. Before you begin to improve your credit score, you need to know what is impacting it and where it stands right now.
- Make timely payments
Credit payment history makes up 35% of your credit score and is the most important factor determining your credit score. Setting up autopay for recurring bills is one of the greatest methods to ensure you’re never late. You won’t have to remember to log in to a payment portal or mail a check because your bill will be paid immediately from your bank account on the due date.
- Pay down debts
After using a credit card for the month, pay the bill in full. If in case you have many credits over you, then pause using credit cards and prepare a plan to pay down the debt. If you have several debts and outstanding bills, use the debt avalanche method. You prioritize the cards with the highest debt in this method and pay them off first.
- Avoid hard inquiries
A hard inquiry occurs the lender checks your credit history to view your creditworthiness. It is done when you apply for a new card or loan. This inquiry is recorded in the transaction history and can affect your credit score. Whereas soft inquiries, such as trying to check your credit score, are not recorded in your credit report and do not affect your credit score.
Can short-term loans affect your credit score?
Whether a short-term loan affects your credit score or not, it entirely depends on your lender. First of all, if you have a bad credit score, only a handful of institutions will provide you with a loan.
Secondly, as we discussed earlier, a new line of credit results in a hard inquiry, which is recorded in your credit history and can affect your credit score. But sometimes, a situation may arise when you need a loan instantly. So, in such times, you can apply with an online loan lender to get a short-term loan in Canada.
Unlike other financial institutions, online lenders do not check your credit score. Therefore, a loan from them doesn’t impact your credit score positively or negatively.
Still, when you are under a credit burden, you should avoid getting any new credit over yourself and focus on paying off the current credit.
So, in short, a bad credit score does impact your creditworthiness, but it’s not the end. No matter if you have a poor credit score, you can improve it by following the tips mentioned above.
Having bad credit is a normal issue that many people face. You can start implementing these tips as soon as now and begin improving your credit score.
Of course, getting another loan over the previous one is not recommended, but if you have a situation that needs immediate money, then you can apply with the online lender to get bad credit short-term loans in Canada.