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Your credit report is a detailed record of your credit history that can affect your borrowing approval, the rates and terms you’re offered and how lenders view your overall financial health.
But even with your report in hand, it can be difficult to figure out where you fall in the different ranges of credit. We walk you though what it means to have poor credit, how you can find out if you have bad credit and what can you do about improving your financial standing.
A signal of bad credit is when your credit report reflects heavy debt, negative repayment histories, rejections, defaults, judgments and other information that lenders consider risky borrowing behavior. It takes more than one negative listing on your report for you to be considered a person with poor credit.
When it comes to how derogatory marks affect your score, all listings are weighted differently. For example, a single credit application will not affect your credit standing by much, but many credit applications made within a short time might. On the other hand, defaults, bankruptcies, late payments and more serious negative listings can quickly cause your score to drop.
The only way to truly know the condition of your credit it to order your credit report. You’re entitled to a free copy of your report every year from the three nationwide credit reporting companies: Experian, Equifax and TransUnion.
Once you have your credit report, you’ll be able to see your borrowing history and individual listings.
Lower credit scores indicate worse ratings that are typically in the range of what’s referred to as “bad credit.” A poor credit score can reflect the likelihood of having a potential negative listing on your credit report in the course of a year.
A “bad” credit score won’t necessarily keep you from approval for loans and credit cards, but what you’re offered could come with worse rates and terms than those offered to a person with a higher score.
Your credit history is used to determine your credit score. Each credit-scoring bureau uses different criteria for measuring your credit score, weighing your history against a proprietary algorithm.
Lenders and even the bureaus weigh the same factors when determining your credit score — even if they weigh them differently — including how long you’ve had credit, your payment history, your credit utilization ratio and how many loan and other types of credit you carry.
In order to know how to change the course of your credit score, you’ll need to learn what sort of activity made it less than favorable in the first place. Here are the typical pitfalls that can damage your credit:
Keep all of this risky behavior out of your credit repertoire to avoid falling into the murky waters of bad credit.
Having poor credit can limit and prevent you from using loans, credit cards and may even affect your chances of being hired or getting the green light to rent an apartment. Some signs that your credit needs a bit of polishing are:
Improving your credit score can be a slow process, but it could help you get financed down the road with more flexible options and better borrowing terms.
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