All of us are destined to face challenges in life. While we tide over the good times effortlessly, it is the downs or lows of life that are a great challenge. Not only does it lower our spirits, but also puts us in a tight spot financially. Bad credit of a person can hurt to a great extent. Moreover, it is very difficult for a person to recover from a bad credit history or convert a bad credit rating into a positive credit rating.
Bad credit history may arise due to many reasons. Some of the common reasons are discussed below.
• When a person does not pay their bills on time
Most of the people lead a lifestyle beyond their means and as a result, they incur more bills and expenses than they are able to pay. Bad credit history arises when the person has huge outstanding debts, with no sufficient money to pay the bills on time.
• When a person has filed bankruptcy
Bankruptcy can ruin a person’s credit rating. Few issues related to bankruptcy leave a worst impact and attract negative points on the credit rating and credit report. A bankruptcy stays on the credit report for a minimum period of ten years. It is obviously a difficult task to get a line of credit from any lending institute with bankruptcy.
• Unexpected or unforeseen situations
We cannot predict the future and foresee all the circumstances and situations. Some of the unforeseen adverse situations affecting the financial aspect of life that might occur in future are as follows:
• Loss of employment or unemployment - A person may lose the source of regular income due to loss of employment. One might have to undergo the toughest of all times due to this. This might also affect his ability to pay his bills on time.
• Disability – Our life may be affected by many disabilities as well. The common reason may be due to accidents or severe injuries hence affecting the health of an individual, preventing him to work and earn the income for self as well as for family.
• Sudden death – Experiencing a death in any family not only results as detrimental to the family, but also makes them suffer from financial aspects.
• Charge off or settlement
Charge offs or settlement is the other reason for having bad credit. When you do not pay on time or forget to pay the bill, the company may assume that you are not going to pay the bill and will write off the bill mentioning the reason as incompetence to make the payment. Similarly, when the outstanding amount is higher, the company may compromise with the customers for paying part of the outstanding amount as complete settlement.
The above mentioned causes are due to negligence on part of individuals. But a person may also have a bad credit due to carelessness of banks and financing companies that fail to update the timely payments made by the customers.