Bad Credit and Your Credit Rating

What is a Credit Rating?

In the United States, everyone has a credit rating. Your credit rating helps banks, loan companies, mortgage providers, credit card companies, and other financial institutions determine whether you are considered a bad credit risk. People with a high credit rating have “good credit” and people with a low credit rating have “bad credit.” The credit number is based on how much debt you have and how good you are at paying off your debts. People who have never had a credit card or taken a loan have “no credit” – which is sometimes even worse than bad credit.

What Can Bad Credit Do to Me?

People with bad credit (a low credit rating) often find it difficult to get credit cards and loans. When they do get a credit card, car loan, or mortgage, they usually pay a much higher interest rate than people with good credit. Generally, it is very difficult to get rid of a bad credit rating. But there are ways to get loans and to improve your credit rating. Getting a small PayDay loan and paying it off on time can help improve your credit rating.

How People Get into Debt

Many people get into debt through their first credit cards. They don’t realize that the fine print in the credit card contract means that your interest rate can go up even if you are only one day late with one payment! Also, many people use credit cards without thinking about how they are going to pay them off. It is very easy to spend $5000 on a credit card, thinking that it will be easy to pay the minimum. But with an interest rate of as high as 18% that means that it will take years to pay back by paying the minimum each month. Many credit card companies will then extend further credit, allowing you to raise your limit and get even more into debt.

Another way people get into debt is with mortgages – buying a house at a high percentage rate, then not being able to make the payments. Sometimes, this is due to job loss or other emergencies that can cause financial troubles.