Bad credit means a history of failure to pay bills on time and the chance of failing to make payments on time in the future. This is also referred to as a poor credit score. A company can also have bad credit depending on their payment history and current financial statusAn individual with bad credit will have a difficult time applying for a credit card and especially at competitive interest rates. Credit card issuers consider them a high risk than other applicants.
Understanding Bad Credit
Applicants who applied for a credit card will have their credit history filed at a credit bureau. The presented information will include the amount they owe, and if they are paying their bills on time. This information will be used to generate their credit score, a number that guides your creditworthiness.
Does no credit mean poor credit?
No credit means you have zero credit history, and a poor credit means you owe money, and you are failing in paying your bills on time. Your chances of getting a credit card are very slim, and if you get a credit card, you will require to get a co-signer or pay a higher interest rate.
Applicants with no credit and the ones with poor credit have similar challenges when applying for a credit card. An applicant with no credit history means that they are yet to establish any credit, so their information is not on the credit bureaus. Bad credit means the individual is listed on the bureaus; however, they have a history of not paying or late paying on their bills.
Individuals with no credit can be categorized into two, the ones with zero experience using credit and those with no credit records or credit Invisibles. An individual can have a credit history but insufficient data for credit bureaus to calculate a score.
How does it Work
Bureaus use an average credit score to meet the three required criteria to calculate a credit score:
• An account must be opened for at least six months before applying.
• An account must have a report activity in the credit bureau within the last six months.
• The credit report should not be of a deceased person; this occurs if the applicant had a co-signer who is now dead.
A poor credit score means the individual had qualified the set requirements to get a score; however, they have bad credit in the past. A bad credit score means you have a history of not paying off your bills on time. It also means an individual has avoided paying their bills due to foreclosures, bankruptcy, and late payments. Notably, a poor credit score tells the card issuer that you have a higher chance that you will default on their credit card payments. A credit score ranges from 300 and 850, and a bad credit score falls below 580, which is considered by credit bureaus as “Fair credit. Among individuals with credit scores, approximately 16% fall in the “poor credit” range.