Demystifying bad credit reports: causes and solution(s)
People with a bad credit report generally know it. In some cases, it’s the consequence of a bad pass or an unfortunate life’s episode. In others, it’s purely because of an unawareness of the elements factored in a credit score’s calculation and the improvement options. I’m going to try to change that.
The outlines
You don’t need to know the exact formula (unavailable anyways) used by credit evaluation agencies to have a good understanding of the main determinants weighing in the credit score’s calculation process. For illustrative purposes, let’s say that your payment history and its length (in time), the sum of your current debts, the relative novelty of your credit applications and the type of financing tools that compose your overall debt portfolio are all factored in the calculation. Generally speaking, you should maintain your debt ratio at a reasonable level and keep in mind that a lot of businesses can weigh in on your credit report, not only your bank. These reports are drafted by credit bureaus based on inputs provided by stakeholders like your financial institution (obviously), your Internet/phone service provider, the furniture and appliance store that you have to pay until 2019, etc. Let’s put it this way: there are credit score improvement’s opportunities with every business that offer financing options, and vice-versa.
The situation you don’t want to find yourself in
Whether you personally experienced it or not, you can imagine how much it’s unpleasant to have a credit report so bad that you can write off most purchases that require monthly payments. Indeed, businesses that provide informations used in the update of your credit score can access it to determine whether or not they want to deal with you, and that can close a lot of doors. Not being able to borrow to upgrade your kitchen or your living room is one thing, but when you can’t find a phone/Internet provider willing to do business with you or you can’t finance a car purchase that you desperately need since you live on the South Shore but work in Montreal… it’s time to turn to the few remaining alternatives.
Homemade car financing: your most realistic option
Advices to improve your credit score are many, but most of them are not that great in practice since they seem to be aimed to people that are not (yet) in big financial trouble. You won’t exactly be shocked if I tell you that fully paying your credit cards each and every month, keeping them at a reasonable level at all time and reaching agreements with your creditors are generally considered best practices. These recommendations are all good and well on paper but don’t give anything concrete for people going through a rough time. The best way to go forward for these individuals is to improve their credit history by adding to it a major purchase repaid in full (and in time). How, one might ask, if nobody is willing to lend you even a penny? It’s not exactly true. Most car dealers have a financing service or a least a subsidiary taking care of this aspect of the business, as it’s the case for Montréal Auto Financement. For all the aforementioned reasons, getting closer to these car dealers or their financing services will kill two birds with one stone by giving you access to a car loan and the opportunity to demonstrate your credit worthiness. Remember: if all the businesses that offer financing options can affect your credit report, that includes car dealers. Don’t go there with your head down: they know that the majority of their clientele is made of people just like you, going (or that went) through a rough time, and looking for a chance to come back in the race.
A bad credit report doesn’t have to be a death sentence. Knowledge is your best asset. Understand the implications of your financial situation and cease the opportunities to improve it.
