A very small percentage of people in this country have the ability to buy major purchases upfront. Most people have to pay over time for automobiles, homes, or your college kid's education. When you finance these purchases, who will give you the money upfront and allow you to pay it back over a specified period of time? And how do they know they can trust that you will pay the money back?
It's simple. Your past obligations will be reviewed to see how you have paid previous debt and/or current obligations. A numerical system is used to figure out exactly how trustworthy you would be paying off whatever loan it is you are currently applying for. That system is called the Fair Isaac Corporation or FICO. It is a publicly traded company that provides decision making solutions, which includes your credit score. Your particular scored is rated according to the following:
The lower your credit score, the less the chance you have of getting your application approved. And many times, although it is approved, the interest rate will be at a higher rate than someone who has a higher credit score.
As far as what makes up credit scores it's the following;
1. Payment history (longer the better) 35%
2. Time in bureau (longer the better) 15%
3. Types of credit (mix of credit cards & installment loans) 10%
4. New credit (new accounts and inquiries) 10%
5. Debt to credit ratio (lower the better) 30%
Late payments, judgements, and chargeoffs are the quickest way to a lower FICO score. But unfortunately, sometimes in life, things happen. Sometimes we are unable to repay a loan that we once promised we would. As a result, there is a negative impact on your credit score. Once this happens, it is very hard to obtain future loans, and in some cases it does make it more difficult to gain employment if the employer runs a credit history as a part of its backround checks.
Here at My Bad Credit Options, we are dedicated to helping you realize that having not so good credit is not the end of the world, and there are alternative solutions. You can still obtain loans and get credit cards with a lower credit score. But we'll be honest and tell you that very likely, the interest rate will be higher be because of it. The good thing is, paying the debt with the higher interest rate will raise your credit scores and allow those rates to go down in the process.
The most important thing at this point is knowing what your credit score is. Do you know your credit score? Many people don't even think about their FICO score until it is time to go out and purchase a big ticket item. Today, you can find out exactly what your credit score is, so that way you will know exactly where you fall in the FICO scoring system.