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Your credit rating plays an important role in getting approval for financial products such as mortgages, car loans and credit cards. If your record tracks a poor pattern of debt management, you’ll be considered a high credit risk and may be refused credit or offered a higher interest rate.
Learn what factors separate a good credit rating from a bad credit rating, plus what your options are if your credit score classifies you as a risky borrower.
The characteristics of a good credit report include established credit accounts with low balances, regular payments made on or before the due date and a clean legal record. A healthy credit report has little or no black marks — like late payments and credit defaults.
A good credit score could be considered anything higher than 670.
In general, a good credit rating will give you access to higher credit limits and lower interest rates.
A bad credit report is usually scarred by things like bankruptcy, and payment defaults. Less extreme black marks include late payments, high credit balances and frequent applications for credit — like applying for three credit cards in a month.
A bad credit score could be considered anything less than 579.
A bad credit rating can result in rejected applications, lower credit limits and more restrictive payment terms. Unless all of your accounts are in good standing, this could signal a lack of responsibility when managing your finances to potential creditors.
The following can result in a negative credit rating:
For starters, you’re probably going to have a tough time being approved for loans and credit cards with low interest rates due to the risks associated with a bad credit rating. Some other ways poor credit can hurt you are:
You may be able to improve your bad credit rating by practicing responsible lending habits — such as making payments on time. It could be worth consolidating debts to make your payments easier, which may improve your credit score in the long run.
There are also credit repair services that offer guidance and counseling to help improve your credit score. Keep in mind that credit repair services charge money and it may not be worth it depending on your circumstances.
While knowing your credit rating is useful when improving your credit history or applying for a loan, it’s merely an indicator of your creditworthiness. Consider the eligibility requirements such as your present employment, total income and current assets before you apply for your next line of credit.
A blank credit report isn’t necessarily assuring to lenders. Most lenders are likely to prefer someone with a proven record of responsibly maintaining open accounts over someone with no history of borrowing.
There are multiple services in the US that provide credit reports, but the major three credit reporting agencies are Equifax, Experian and TransUnion. Consumers are entitled to a free credit report every 12 months from each of the credit bureaus.
The range of details in the report may vary between agencies, so it can be useful to see exactly what’s there to ensure that they’re all correct. You should contact the credit reporting body as soon as possible if you find any mistakes on your credit report.
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