A negative credit rating hurts your chances of getting a loan. Plans to buy a house or car often call for improving a low negative rating. You can do several things to help fix a bad score. But before you can improve your rating, you need to understand possible causes of a negative credit rating.
Credit Scores
Credit scores range between 300 and 850, and upon reviewing an applicant's request for credit, lenders and creditors place applicants in three categories: good credit, fair credit and bad credit. Scores 680 or higher are considered good by most lenders, and these people can qualify for the best rates. Anything lower than 620 is considered bad by most lenders, according to Bankrate.com. It becomes harder to acquire financing with a score in the low 600s, and if approved, you'll pay higher interest rates.
Causes of Negative Credit Rating
A negative credit rating can develop from a history of poor credit decisions such as late payments, missing payments, carrying high credit card balances, allowing accounts to go to collection, judgments and bankruptcy. Everyone makes mistakes, and missing or sending in one late payment won't trigger a poor rating. On the other hand, if you don't understand credit scoring and how credit works, a pattern of unwise decisions can take points off your rating and place you in a sub-prime category.
Consequences
Credit rejections and high interest rates are only two consequences of a negative credit rating. People with poor credit know of their limited finance options and realize that they may be unable to buy a home. However, a negative credit rating can also affect rental options. Some landlords will not allow you to rent, or they may charge a higher security deposit. And if you are looking for insurance policies, a negative credit rating can result in higher premiums.
Credit Restoration
Putting together a plan to fix a negative credit rating can improve your situation and make it possible for you to get hassle-free financing. You can't fix a bad rating overnight. But you can slowly increase your credit score until you reach prime status. It doesn't take much to fix bad credit. Paying bills on time and paying down debt on credit cards can have a significant impact on credit scores.
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