Why Bad Credit Isn’t As Limiting As It Used To Be

Bad credit used to be devastating. A decade ago, if you had a poor or fair credit score, you’d find it nearly impossible to get a reasonable loan, and you might even have trouble getting a job or an apartment. But in the modern era, having a bad score isn’t nearly as limiting. Your credit score is still important, and can still affect your life in many ways, but it’s nowhere near as devastating as it has been in the past.

Bad Credit

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So why is this the case?

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Factors for Reduced Credit Score Impact

These are just some of the main factors for the reduced impact of negative credit scores:

  • Online options for loans and credit cards. Most prominently, the internet has made it possible for the average person to find far more options and alternatives for things like loans and credit cards. There are plenty of credit cards available for people with bad credit, and different types of loans that cater to people with a checkered financial history. These options may come with a few caveats, like a slightly higher interest rate or a lower credit limit, but they’re available, so it’s nearly impossible to get shut out from a financial product you need.
  • Alternative funding options. If you’re interested in starting a business or raising money for a private venture, you also have more funding options than ever before. Crowdfunding is ridiculously popular, and if you know how to use it correctly, you can rely on it to keep your ideas flush with cash.
  • Accessible information for improvement. The internet is also full of free resources and information you can use to better understand your credit score, and eventually improve it. Anyone with a bad credit score has the potential to improve it if they apply the right strategies, and thanks to the abundance of information online, those strategies are public information.

Credit Scores Still Matter: How to Improve

That said, your credit score does still matter. Even if you find a reasonable loan thanks to a diverse array of online options, you’ll still get a better rate if you have a higher credit score. You’ll find it easier to find funding options and credit opportunities, and you’ll be able to forgo deposits for utility companies and other monthly services.

So what steps can you take to improve a bad credit score?

These are some of the most helpful:

  • Avoid opening new loans or credit cards. First, try not to take out any new loans or open new credit cards. Borrowing more money will only have negative consequences for your overall credit score. Instead, focus on the accounts you currently have open.
  • Pay all your bills on time. The most important factor for your credit score is your payment history. If you miss payments or pay late consistently, it will hurt your score. If you pay consistently, on time, your score will improve. It takes a while to improve your score this way, but it’s an essential habit to master if you want to get to “good” or “excellent” territory.
  • Reduce your total debt. The more debt you have, compared to the available credit you have, the lower your credit score will be. You can, therefore, improve your credit score by reducing your total debt. There are several strategies you could use for this purpose, including eliminating unnecessary expenses from your budget and reducing your spending on areas like groceries or utilities. You could also increase your income by asking for a raise, seeking a promotion, or establishing a secondary line of income.
  • Keep your accounts open. Part of your credit score depends on the history of the longest account you’ve had open. The more history you have with your accounts, the stronger your credit will become. Accordingly, it’s a good idea to keep all your accounts open as you improve your credit score—especially the oldest one.
  • Monitor your credit actively. You’re entitled to check your credit score for free, so check your credit score a few times a year to evaluate your performance. Monitoring your credit report will alert you to any discrepancies that need to be resolved, and will help you understand how your habits are gradually reshaping your credit score. Just be careful not to check your credit score too often, or it could negatively impact your credit score.

Your credit score still has a massive impact on your financial health and financial options, but it’s possible to get by with bad credit, thanks to the multitude of options and alternatives available to you online. Pay close attention to how your credit score develops, and do what you can to stay in the “good” or “excellent” range.




About the Author

Ankur Shah
Ankur Shah is the founder of the Value Investing India Report, a leading independent, value oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on India and South East Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and a sell-side analyst for an emerging markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at the Value Investing India Report. -- He can be emailed at AnkurShah47@gmail.com