Having bad credit might seem as if it’s getting in the way of all your life projects. You might think that no matter what you do, bad credit will cause you to stagnate and prevent you from moving forward.

It’s necessary first to determine precisely what it means to have bad credit if you are to avoid it. And once you understand what it is, it will be much easier for you to improve it.

Credit history is a collection of data regarding your financial background. The purpose of credit history is to study the economic behaviour of a person applying for a loan.

A credit score is a risk that is calculated based on your credit history, where a score below 459 is considered weak or below average. Overdue payments, bankruptcy and loan defaults are the most common causes for a low rating, and therefore, bad credit loan history.

Now that you know what bad credit is, we will show you six signs that will let you know if you’re heading down the road toward a bad credit rating.

You have several overdue debts.

If you have multiple debts and do not know how to settle them, an excellent strategy is to make a list of each one and evaluate them as follows: sort them from highest to lowest and compare the interest they are charging. Then, you will know how to prioritise paying them off. In general, it is best to pay off debts that generate the highest interest.

You do not make your payments on time.

You may find it very difficult to pay your debts on time, either because you forget the cut-off date or you don’t really have the liquidity. Regardless, you can apply small strategies that will make you better at handling your credit.

The first thing you should do is to establish both your income and your estimated monthly expenses. From there, check what costs you can reduce to raise the budget you spend on paying your debts.

Then, it would be best if you looked for a way to remember to make payments on time; this can be done through reminders or with digital tools that help you monitor your credit history.

You abuse your credit cards.

Constant use of your cards can lead to abuse of your cards. Remember that the more you use them, the higher the debt you have, and if you cannot make the necessary payments on time, this will remain a negative aspect in your credit history.

Try to limit their use for when you need them most and manage your expenses well.

If you have not seen an increase in your credit limit lately, have received payment requests from the bank, or only been able to pay the minimum amount off your cards, you will most likely have bad credit.

You had to pawn or sell your stuff.

A standard indicator that something is not going well with the finances is that you had to pawn or sell things you did not have in mind. It can happen for several reasons: family problems, labour issues, or medical emergencies.

But the real problem appears when the cause is the mismanagement of your money. They need to sell these items shows that something is wrong and, in the long run, will affect your credit history negatively.

You are looking for financial help from friends or family

Many people turn to relatives or close friends to ask for financial aid to pay off their debts.

While this prevents your credit history from getting worse, in the end, it is still a debt, but this time with a person and not a banking institution.

Remember that this should only be a temporary solution in cases of extreme need since at some point you will have to take care of your debts for yourself. If in the end, you cannot solve this problem, you will get into debt again, and you will have bad credit.

You have received writs summons and court judgments.

The former already indicates that you have a significant problem with your finances. For a bank, a writ summons or court judgement is one of the factors that most negatively affect your credit history. So try to avoid reaching these extremes.

If you feel identified with any of these signals, don’t worry, there are always ways to improve your credit history. It is even possible to get a loan with bad credit. In Australia, you can opt for a short term loan, although you may have a higher interest rate. You can also get home loans contacting a mortgage broker. As for credit cards, if it is more complicated, it’s much easier to only opt for debit cards.

Now that you know if you have bad credit, you can start making changes in your life to improve your credit history. Learn how to properly use the credits to which you have access and reduce debts. This way, you will have control over your finances and favour your opportunities.

James Montano