Understanding credit can be very confusing at times – this rating system dictates what we can and can’t do when it comes to borrowing money, but it can only often be improved by repeatedly borrowing money! If that isn’t confusing enough, there are also two forms of credit that a person can be tied to: good credit and bad credit. Although they might not sound too different, there are quite a few things that set these two credit ratings apart, and knowing what they are can help a lot when it comes to borrowing money. To help you get up to speed with good and bad credit, in this article we take a look at some of the key differences.
Good and bad credit basics
If you’re trying to work out the differences between good credit and bad credit personal loans in Melbourne, you’re certainly not the only one. But before we get into what good and bad credit actually are, it’s important to define what credit actually is. In essence, credit revolves around your credit score – this number reflects how much of a risk you are to a potential lender, so if you have a low credit score, a lender is less likely to take a chance on you, but it also means that if they do take a chance on you, you will often be charged a higher interest rate. The inverse is true of high credit scores, and both of these ratings basically represent both ends of the credit scoring spectrum. The credit score is made up of things like how much money you currently owe, any late or missed payments you have made in relation to repayments and your overall credit history (which will demonstrate how long you have been taking out loans for) and any applications you’ve made to take out a loan . All of these things combine to give a detailed history of your credit history, and it is a history that lenders will keenly examine if you come to them wanting a large sum of money.
Transforming your bad credit into good credit
If you already have bad credit, you might find that getting a loan can be difficult. Thankfully, there are still ways you can transform your bad credit into good credit. Rather than looking to take out larger loans knowing you won’t be able to make the repayments back in a timely fashion, there are a few things you can work on too build your credit rating back up to bring interest rates back down. Firstly, you should always ensure that you make your repayments on time, pay off any debts that you have (rather than making new ones constantly), lower your credit utilisation ratio by using a smaller amount than your credit cards allow for each month, make any loan-related enquiries in a shorter space of time, and if it is possible, it’s never a bad idea to ask friends or family to help pay off your debt so that you can limit the interest you accrue.
Can’t shake bad credit?
Even if you do have bad credit, it’s still always possible to get a finance from many online financial providers, but if this is an avenue you pursue, it’s important to make sure that you don’t sink into more debt because of it! At the end of the day, seeking tailored financial advice may very well be the best way to help you lift your credit rating, so never undervalue seeing a professional.