Bad Credit: The Ultimate Guide

Bad credit may impact your life in many ways. It makes it harder to secure personal loans, car loans, mortgages, and credit cards with bad credit. Additionally, bad credit can also negatively impact your ability to rent an apartment or land your desired job.

If you need funds urgently, consider finding loans for bad credit or getting a cosigner to help you secure a loan. However, you can improve your borrowing prospects in the long term by raising your credit score. It all starts with learning what bad credit is and what causes it.

What is bad credit?

Canada’s two major credit bureaus create a credit file for anyone who has obtained a loan or a credit card. This file contains a record of your debts and payment history. Credit bureaus use this information to create a credit score, a three-digit number between 300 and 900. The number indicates how good or bad your financial habits are.

Making payments on time, repaying debts in full, and using about a third of your available credit or less results in a higher credit score and indicates “good credit.” Missed payments, late payments, and considerable debt may earn a low credit score that suggests “bad credit.”

The causes of bad credit

You can have bad credit if you don’t have much of a credit history. For instance, when an 18-year-old applies for their first credit card, it may be tough to get one since they may not have a credit file with a good history of payments.

Bad credit is also a result of poor financial habits. You may have bad credit if you’ve often missed loan or credit card payments in the past, maxed out your credit cards, made late payments, defaulted on payments, or applied for too many credit cards within a short span of time.

Why bad credit matters

When you apply for loans or credit cards, lenders examine your credit report closely to determine whether you’re a responsible borrower. Bad credit may cause lenders to reject your credit applications, making it harder to buy a home/car or access funds through personal loans and credit cards. You may miss the low-interest rates that good credit can secure if approved.

Since insurers often check credit reports, bad credit may make buying insurance more expensive. You’ll likely deal with higher premiums than those with good credit. Like lenders and insurers, landlords seek a tenant who can make their monthly payments on time. If you have bad credit, you may need a cosigner to be able to rent an apartment or house.

Dealing with bad credit

Improving your credit may offer many benefits. Consider these tips to improve your credit.

• Make monthly payments (such as credit card or loan payments) in full and on time.
• Avoid carrying a balance on your credit card or restrict it to 30% of your credit limit.
• Consolidate multiple high-interest debts to streamline monthly payments.
• Work on building a strict budget and an aggressive debt repayment strategy if you have a lot of debt.