Bad Credit refers to the results of failing to stay current on credit agreements. In practice it leads to an incapability of being approved on new lines of personal (or business) credit. It usually results because the individuals or businesses in question have failed to pay prior credit obligations or loans in a timely fashion. It could also mean that the individuals (or companies) in question have failed to repay their credit obligations whatsoever.
Several major credit bureaus actually maintain a complete record of individuals’ credit histories in files called personal credit reports. These credit reporting agencies gather all relevant credit information, including timely or delinquent payments or defaults on credit card obligations and outstanding loans. They place all of this good and bad information alike on the individuals’ personal credit reports. Any accounts that had high balances, went out for collection, or led to vehicle or personal property repossession or the filing of bankruptcy protection will all be noted on the credit reports.
These episodes lead to seriously bad credit. It becomes most derogatory when there are many cases of such negative credit items which become filed by creditors in relatively short time spans. There are many negative credit events that can cause lenders to shun businesses and individuals when they only appear even once on a given credit report. Among these are repossessions, bankruptcies, and foreclosures.
Such information which collects in individual and business credit reports becomes the cornerstone for credit scores. These represent three digit numerical portraits of any individuals’ or entities’ credit history at a particular moment in time. For individuals, such credit scores typically run the gamut of from 300 to 850. While 850 would represent the ultimate in perfect, spotless credit, 300 refers to the worst possible or no credit history scenarios.
In point of fact, every lender makes its own determination for what is a negative or positive credit score. A range of breakdowns are more or less consensus with many firms however. Variations naturally exist on these ranges, as some companies are more credit averse and risk prone than others are. From 700 to 850 is typically regarded as excellent to very good credit. From 680 to 699 is commonly called a good credit rating, as the average American possesses a 682 score. From 620 to 679 they consider to be average credit.
Low credit kicks in ranging from 580 on up to 619 in general. Poor credit runs from 500 to 579. Outright bad credit ranges from 300 to 499. Obviously there are some variances of opinion on what is considered a low versus a poor or bad credit score. A massive number of lenders draw the line at 620. Under this represents significant credit risks, while above it is a score with which many of them will work.
Having bad credit means that the majority of lenders do not really want to extend credit to these individuals since they are likely to run behind on the agreed-upon repayment terms that come with the account. This leads to credit applications being rejected. For those who do manage to get approval despite their poor credit, they will typically find that they are receiving greater interest rates than those borrowers who maintain high to good credit scores. This is because the lender requires greater compensation in exchange for taking on a higher degree of risk in lending to credit-risky personal profiles.
For those who suffer from bad credit, there are other consequences beyond having loan, mortgage, and credit card applications rejected or receiving higher interest rates provided with successful applications. Insurance companies use deceptive variations on credit scores to come up with the insurance rates which they offer. Utility companies as well as cell phone carriers will commonly exact a security deposit from those applicants who boast negative credit. Landlords of properties will often demand a larger security deposit from those with poor credit. They could simply reject the rental application altogether over it.