Bad Credit Borrowing How Does Bad Credit Affect Your Borrowing?


A loan is basically the amount of funds you receive from a lender with a promise that you are to repay it immediately. There are many things that compel us to seek for a loan, chief among them emergencies or projects we intend to complete fast but we might not have the money now. For example, your daily job or business might be well paying and you are saving quite well for a business project you intend to start on the side. While you could wait for five or ten years to save for the project, approaching a lender for the amount will speed up the actualization of the project while repaying of the loan is as agreed, perhaps for a number of years of deducting some money from your account as you get paid.


Contractual agreement

After you have borrowed a loan, there is a process where you end up signing some contractual agreement to promise the payment of the money for a number of times at a certain date every week or month. You need not worry about a loan since everything is agreed between you and the lender and there is no dishonesty if you can meet their monthly payments as per the agreed terms.

Bad and good credit

Credit essentially depicts the belief or trust by the lender that you will be repaying the amount borrowed. Those who are said to have good credit scores or standing are borrowers whom the lenders have a strong belief as per their history of repayment that the debt, including other monetary obligations, will be met. Bad credit on the other hand simply means you will have problems repaying or you are unable to repay a loan on time. Remember your loan borrowing and repayment does have some effect on the credit score, a numerical representation of the history of your credit at various times in your life.

Funds application impact on credit

Obviously, loan application usually lowers the credit score you have by a number of points. The reason is due to the fact that 10 percent of the score of your credit is from the applications you have made for a loan or credit. Every credit application sees an inquiry on your credit report indicating a credit report has been reviewed by a potential lender. A number of inquiries on a credit score could indicate an individual is quite desperate for money or a person is applying for so many loans more than he or she is able to repay.

Grace period

Those looking for an auto or mortgage loan have a period of grace when credit applications do not affect the credit score. After you have completed the process of shopping for a good rate, all the loan inquiries made are taken as single credit applications and not a number of them. This only happens 14-45 days, although it depends on the credit score a lender is using to ascertain your score.

The most important thing is that the way you repay the loan highly affects the credit score, with payment history being 35 percent of the credit score. It is more than other factors used in its determination and if you pay the loan on a timely basis the credit score will improve.

About Author

Michael is a finance broker who advises individuals on raising funds and getting loans. He recently blogged about how a log book loan can help you raise funds against your vehicles when you need money urgently.

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