(MENAFN- Payday Ventures)
Did you know that it's possible to take a loan with a bad credit score? Well, yes, it's possible to get a loan on some platforms regardless of your bad credit history.
But will that affect your credit score? That's why I'm here today to enlighten you about how bad a credit loan will affect your overall credit score.
But first,
What is a credit score?
Today I will define a credit score as any number between 300 and 850 that creditors use to know a borrower's creditworthiness.
To get credit score value, the credit bureaus calculate it using the number of the active borrowing accounts, the unpaid debts, and of course, the repayment pattern.
The following is the classification of credit scores:
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300 to 579 =Poor
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580 to 669- Fair
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670 to 739- Good
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740 to 799- Very good
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780 to 850- Excellent
In most cases, it's rare to find someone with a credit score of above 780. The most significant number of individuals lie between poor, fair, or good credit scores.
Now,
How will bad credit loans affect your credit score?
Bad credit loans can build or continue to destroy your credit score, and all that depends on how you handle them. So, what are the factors that will contribute to changes in your credit score?
1. Your payment history
If you get payday loans bad credit instant approval the lender knows the risks of doing business with you. But, of course, the most apparent hazard is defaulting.
So, suppose you confirm the lenders' fears and fail to pay off the debt. Then, the lender will lose their money, and you will destroy your credit score further.
But if you manage to repay the loan, there is a chance of rebuilding your credit score by making timely payments.
2. The credit accounts that you have
When conducting credit checks, the lenders will know your total number of credit accounts, including credit cards. Therefore, if the lenders perform more hard credit inquiries, it will negatively affect your credit score.
The hard credit inquiries appear on your credit score for at least two years, so if many lenders do it on your bad credit, it will negatively impact your credit score.
3. Lousy credit loans equal more debt
If you manage to get a bad credit loan, there is a possibility of having unpaid loans on your credit history. So, if the new lender adds their loan to your credit history, it may hurt your overall credit score.
That's why you should focus on repaying the past debts and take credit rebuilder loans. However, more debt can result to lower credit scores.
4. The total amount owed
If you go ahead and take a bad credit loan, the loan will increase the total amount owed. And that will sound like a bad idea to the credit bureaus, thus reducing your credit score.
In addition, having a considerable amount of loans shows that you have a very high credit utilization ratio—which will sound harmful to the creditors. So it's not advisable to spend more than 30% of your total credit limit analysis.
Having too many loans that you haven't repaid doesn't look like you will eventually repay the loans. That's why some lenders will not help you. Indeed, I don't think any lender will consider your application when you have a poor credit score.
5. How long have you been in debt?
If you already have a bad credit score, it means that you have been in debt for some time. In addition, the length of your credit years translates to comprehensive credit history.
So, if you take a bad credit loan, it means you have had a short period of borrowing that is full of horrible repayment histories.
My take
If you do not want more harmful effects on your credit score, it's good to take small bad credit loans to help you rebuild your credit.
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