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Monday, March 2, 2009

Affects of Bad Credit

By Karen M. T. Stone

So many people grow up knowing nothing about money management. They were never taught from their parents who were probably never taught themselves. The problems this causes can ruin the life of anyone who is affected. How so?

Those who are financially illiterate spend money without a thought. They spend and spend on mindless things they don't need without thinking about the consequences. This usually leads to credit cards.

When shopaholics get their hands on a credit card, bad things happen. They charge everything to it and only pay the minimum payment. This leads to interest and all the debt begins to pile up. Soon they are unable to even make the minimum payment. This can lead to thousands of dollars in debt and possibly bankruptcy.

This situation or even much less severe situations will always lead to a bad credit history. You probably have heard that bad credit is not where you want to be. This is absolutely true. When you don't pay back money you borrowed with a promise to pay, you feel the consequences.

You don't get a slap on the wrist when you miss a payment, but it is likely to affect you poorly in the future. If you have bad credit history and a bad credit score, the next time you go to apply for a loan, it will be very hard if not, impossible. Lenders will not lend you money if you have very bad credit, and if they do, you will be charged a very high interest rate.

When someone decides to lend you money, they are taking a risk. They can never know for sure that you will pay it back. This is why they look at credit. If you have absolutely no credit, you probably won't be able to get a big loan such as a mortgage without a cosigner.

A cosigner is someone who can really help you out. If you have no credit, you can find someone who has good credit. If they are willing to, they will cosign with you and you will be able to get the loan based on their credit. If you get the loan and you stop paying, the cosigner will have to pay or else their credit will be damaged. This is why it is not easy to find a cosigner, especially if you have bad credit.

If you are having trouble paying your bills and you don't want to hurt your credit, you need to take action to ensure you always pay everything. Make a budget and cut back on your expenses. If it is really bad, move into a smaller living space that costs less or move back in with your parents if you have to. Bad credit and heavy debt is not where you want to be. You have to correct it now in order to ensure a bright future.

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