Have you ever heard of someone doing something and that thing tarnishing their name for the rest of their lives? Think of the old story ‘A Boy who Cried Wolf’. In this story, because the boy had falsely cried wolf so many times in the past, there was no one who would believe him when a wolf finally did turn up. Well, this is similar to how credit works. When you receive a loan, you have to pay it back in regular instalments, at fixed dates. This is how it works. If you miss a repayment, you get a negative credit score. If you continue to miss these payments, you will end up with a bad credit rating. When you apply for loans in the future, the lender will ask you for your credit rating. They will use this to make a decision on whether or not to lend to you. If they see that you cannot be trusted to repay the money, they will not lend to you. Here are the reasons why a lender will not lend to you with a negative credit rating.
How a Credit Score Affects Your Chances of Getting a Loan
When a lender sees that you have a poor credit rating, it tells them two things. Firstly, it tells them that you may be unorganized. This is because it takes organization to arrange your affairs so that you can make a payment at the same time, every month. Not being able to do this is a bad sign. It also shows them that you may not have the financial backing to repay a loan. Therefore, you could be the nicest, most trustworthy person in the world, however, if you do not have a steady stream of income, you will never be able to repay a loan.
There is Still Hope
You will be glad to hear that just because you have a poor credit rating does not mean that you will be unable to get a loan. There are many firms who provide business loans for bad credit. These are firms who will taka chance on you. They will still provide you with the much-needed loan despite the fear of you not paying it back. Due to this added risk, there may be higher interest rates attached to the loan. Therefore, expect to pay a little more than you did before. However, this will serve to strengthen your credit score.