The recent economic crisis and housing crash took a huge toll on the financial footing and credit reputation of many Americans. As such, it is normal today for people to find themselves reaching the stage in life where they wish to invest in a home, family or car, or even to put their own children through college, yet are burdened with debt and bad credit. Fortunately, with through the enterprising nature of banks and new credit unions, these days it is much easier to obtain a loan even when one’s name is muddied by a credit history.
“The recent economic crisis and housing crash took a huge toll on the financial footing and credit reputation of many Americans.”
So, what is credit history? Also known as credit reputation or credit score, it is the negative record of an individual’s past financial actions in terms of borrowing and repaying. This will include such things as late payments or worse, bankruptcy. This information is held by a credit bureau, which is typically consulted when a person applies for a loan. It is used by credit card companies so as to evaluate an individual’s worthiness, giving them an indication along with available credit and proof of income as to whether the investment would be good or bad.
What causes bad credit?
Here are some typical reasons for or causes of bad credit, that may result in an individual being turned down a regular personal loan:
- CCJs, which are judgements that have been issued to an individual by a county court if that individual has failed to pay money that they owe. They are a way for creditors to claim the money that they are entitled to.
- Mortgage arrears, which are missed payments or overdue debt owed to a bank, credit union or other financial institution by a home buyer.
- Default, which is similar to the above and is the technical term for when one fails to meet the legal obligations or conditions of a loan.
- Bankruptcy, which is when a company or business is unable to pay existing debts. This is filed by the debtor, and allows for the evaluation of the debtor’s assets so as to determine how much of the outstanding debt is to be paid.
- Repossession, which is the seizing of an object that has been used as collateral, or rented or leased in a legal transaction.
- Foreclosure, which occurs when a homeowner is unable to make the principal or interest payments on a mortgage, causing the home to be seized as collateral.
Can I get a loan with bad credit?
Given the accuracy and efficiency of credit bureaus in retaining what can amount to damning evidence of an individual’s reliability in terms of borrowing money, many are now burdened with bad credit. Bad credit loans are designed for just this group of people, though typically come with an interest rate that is generally higher than that offered to borrowers with good credit. This will reflect the high risk associated with someone who has bad credit in the eyes of the lender. Bad credit loans are also useful in that they allow borrowers with a credit history to build back, or repair their financial credibility.
Bad credit loans are often sought out by those who are self-employed, since an individual who has founded their own company often lacks personal income which is seen as less safe than those who have a steady stream of income. They may have also already borrowed money in the past so as to raise the capital required in order to finance the starting of a business, and perhaps had difficulty paying it back. As such, lenders may consider those that are self-employed to be higher risk investments than those that are not.