Bad Credit

The term bad credit indicates an individual's bad repayment history of the loans availed by him from one or more financial institutions. A credit history of a parson will normally be analysed when he attempts to secure a loan from the same financial institution or from some other financial institutions. The history of a person has a crucial role to play in the process of loan approval to a person from a bank or any other financial institution.

Bad credit- how it affects a loan approval

The first and important document that you may have to submit in the bank while you make a request for loan will be your credit history. If you have a good credit history it will act as a proof for your credibility and repayment capacity.

How to evaluate a credit record

Banks normally apply a specific mathematical formula and the reports from the banks from which you have availed loan/loans to assess your credibility and repayment capacity. The result of this calculation will be compared by bank to the history of other persons. The result of this comparison can be negative or positive and if the result is negative you will be included in the list of persons with a bad credit record. A bad record will normally be given to a customer who was not prompt in timely repayment of the loan amount. A person declared as bankrupt by the court as well a person with a court judgement against him will also be treated as persons with bad credit.

To decide whether an applicant for loan is a person with bad credit or good credit, the banks may also look into the present earnings of an applicant.

Impact of a bad credit history

Normally an application for unsecured loans from a person with bad history will be turned down by the banks. Otherwise they will have to remit higher interest rates than other customers of the bank with good record. But they can also ail loans from the bank if they can secure the loan amount with collaterals to the satisfaction of the bank.