There’s no doubt that credit scores and overall credit health play a major part in our daily lives. Credit scores are used to determine whether we can get new lines of credit, or are approved for major life necessities like a new property, business venture or bad credit car loan in London.
Although everyone strives to get the best credit score possible, it can be hard to attain an “excellent” score when there’s so many life variables impacting an individual’s financial health. As a result, there is a huge variety in the ranges of credit scores– no financial situation is the same. Whether you have zero credit, bad credit, or excellent credit, you should always aim to improve or maintain your credit health for your personal benefit.
So, in the grand scheme of things, what’s the difference between no credit and bad credit, and does it make a difference? We’ve broken it down:
What No Credit Means
You can take the term “no credit” at face value, because it means exactly that. When an individual has “no credit” it either means they’ve never used a credit system before, or they have zero credit history. Therefore, no credit cases are common for new Canadian citizens, as well as teenagers that have transitioned to adulthood.
When someone moves to Canada, any previous record of their credit health in a different country is irrelevant to their financial health here. When someone moves to Canada, they are essentially starting from scratch–and it’s not necessarily a bad thing. Building positive credit with a clean slate can be achieved easily.
How Bad Credit Is Established
For someone to achieve a “bad credit” status, it means that they have had access to credit and been evaluated by credit bureaus as irresponsible with their credit. A bad credit score is any score below 620 or in the “low credit” range. Unfortunately, bad credit can be established quickly and easily, which is why many people are actively working to improve their credit scores. Bad credit can be established through late payments, declared bankruptcy, allowing an account to go to collections, or using more than your credit limit.
Why Credit Matters
As we mentioned previously, credit scores definitely affect how we live our lives. Our society has designed the system to be advantageous for those that use it, and therefore those that don’t use a credit system at all will instantly be disadvantaged. Because of this, people are essentially forced to use credit.
Credit scores are used to assess whether individuals get approved for housing–even apartments. If someone doesn’t have credit history but are still responsible with their money, it won’t matter to lenders as there is no real track record. People without credit will be subject to pay higher utility deposits as to lenders, they’ll pose a risk. In some places, there will be much higher interest rates, or people will be rejected entirely, if they seek out a loan of any form.
How To Build Credit Quickly
Create Positive Credit
The best way to combat bad credit is to develop positive credit. You can achieve positive credit in many ways, from creating a healthy credit mix with new credit lines, credit cards, or loans. We recommend applying for a secured credit card. With a secured credit card, you can pay a deposit matching your card’s credit limit, so if you skip payments, your lender can cover your owed amount without any issues.
Another way to build positive credit is through a bad credit car loan. If you make regular car loan payments, your payment history score will increase and ultimately your total credit score.
Make Regular Bill Payments
If you have multiple credit lines, a vast collection of bills to pay, appointments and other life events to keep track of, making regular payments can be easy to forget!
Keeping organized, developing a regular payment schedule, or using automated payment programs can definitely ensure that your payments are made regularly!
If you’re making conscious efforts to make regular bill payments, it’s crucial to choose a system that works best for you. Now that the digital era has transformed our daily operations , many people now set online calendar reminders, or created plans local banks to deduct funds automatically from their account to pay off bills.
If you’re experiencing any kind of financial emergency, try contacting your creditor to give them a heads up that you may be late on a payment. If you request a payment deadline extension and state why you need it, they may approve and move your payment back. It won’t hurt to try asking!
At the same time, it’s important that you don’t abuse this favor as creditors may soon view you to be financially irresponsible.
Your credit score is actually determined on five different factors:
1. Payment history
2. Types of credit
3. New credit
4. Length of history
5. Amount owed
History of payment can account for approximately 35% of your credit score– just making regular payments can make a huge impact on your overall credit score!
Research Your Options
If you’re going to open up a new line of credit, why not get the best bang for your buck? Doing a bit of research when you’re initially shopping around for a credit card can go a long way if you select a card that best suits your spending habits.
Credit lenders perform a “hard credit check” when you make an inquiry into a new line of credit. A hard credit check is when a credit institution looks into your credit health to make a decision on your loan inquiry, but these checks itself can actually impact your credit score negatively. Because credit lenders perform hard credit checks, it’s important to not just apply for any and every credit card available.
The good news is that credit bureaus group together hard credit checks within periods of 30 days, especially for large credit loan requests like a bad credit car loan in London.
Ultimately, if you just accept the first credit offer that comes your way, you may not be fully optimizing your finances. Choosing something specific to your needs can help you get a greater return on your spend and even increase savings.
Limit Your Credit Utilization
If you’re unsure of what credit utilization actually means, it’s just a ratio of how much credit you’ve spent compared to what your credit limit is. Credit utilization is usually expressed in percentages, and can significantly impact your credit health positively or negatively.
Creditors use credit utilization as a measure of individuals’ financial responsibility. If a person has a credit limit of 10,000 but spends $9999 every month, it won’t look too great in the eyes of creditors. Even if you’re able to pay off your credit bill, spending all of your credit is interpreted as being irresponsible. So, if you find that your credit utilization is high but you’re needing to spend a high amount of money monthly, you should definitely contact your credit provider to increase your monthly credit limit.
A general financial rule of thumb that many advisors recommend is having credit utilization of 20%– if you have a limit of $5,000, try your best to spend no more than $1000.
Credit utilization makes up 30% of your overall credit score (on average). Keeping a healthy credit utilization ratio is an effective way to improve your credit health quickly!
If you do plan to use a credit card for a big-ticket item, you don’t have to be worried if you work quickly to pay it off. For example, if someone pays $4900 on an item, and their limit is $5000, try to pay off your balance before your credit card provider reports your balance to credit bureaus. If you do so, your credit score won’t be affected at all.
Here at London Bad Credit Car Loans, we’ll work with you through every step of the process to ensure you feel comfortable and satisfied with your car loan.
Our dedicated team will work endlessly to make sure you get the lowest possible interest rates from Canada’s top banks. We have the best approval rates in Ontario, and will make sure we find a plan that suits your personal and financial needs. We offer a huge selection of over 7000 vehicles for you to choose from, so you can be sure you’ll find the car of your dreams! To prove our long-term commitment to you, we’ll even deliver your new set of wheels straight to your door, free of charge. If you’re not totally in love with your new ride, you can return it risk-free within 30 days.
We’ve established this car loan system because we put our clients first, always. If you’re looking to build credit through a bad credit car loan in London, contact London Bad Credit Car Loans today!