Having a stellar credit score is not a requirement when applying for loans. However, one needs to have at least a good credit rating to qualify for your loan of choice.
Take mortgage loans, for example. While others will require you to have good credit, but there are still mortgage programs that accept people with bad credit like FHA loans, USDA mortgage and va home loans in texas. If you can only afford 3.5% down payment and has 580 credit score, then an FHA loan is perfect for. If you need 100% financing, you can either go for a USDA loan or va home loans in texas.
As for credit cards, applying for one when you already have bad credit can lead to higher interest fees. These are some of the reasons why it’s worth building your credit before applying for new loans and credit accounts.
But what causes a bad credit rating in the first place? Here’s what you need to know.
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Making The Wrong Credit Card Choice
There are credit cards that have small credit limits, while others have none. There are also those with low-interest rates. These are just some of the various credit card types to choose from. Choosing the kind that doesn’t match your needs can lead to poor credit management and eventually can harm your score.
Failure To Make Responsible Credit Payments
When you have credit cards or existing loans, it is essential that you pay your monthly dues on time. Failure to pay on time or even missing a payment will be recorded in your credit history. If you keep this up, your credit rating will eventually suffer.
Only Settling Minimum Monthly Payments
When you have a loan or credit card, there is a fixed date wherein you’re expected to pay your monthly dues. Even if you’re able to pay your dues every month, only settling the minimum each month can also affect your credit score. The less you pay monthly. The bigger the interest fees, the longer it will take to pay off the loan.
Filing For Bankruptcy
Bankruptcy is verifying the fact that you, as a borrower, can no longer pay your outstanding credits. This is, by far the most damaging thing to your credit rating. As much as possible, it would be best to enroll in a Debt Consolidation program to avoid having to file for bankruptcy.
No Credit History
Having no credit history can also be one of the reasons you have bad credit. Non-Existent credit history will give your lender a reason to think you’re not qualified for a loan. Applying for a credit card is an excellent way to start building your credit rating.
Identity Theft
While this can be unfair and not your fault, it can hamper your ability to qualify for loans and credits. Identity theft can max out your cards, apply for loans under your name, put you under thousands of debt, and leave you with a terrible rating. Thankfully, you can stop one from ruining your life and from it having an impact on your financial status in the long run.