Many people do not realize how much debt people have in collections.
However, statistics show that the Canadian market for debt collection agencies generates more than $700 million annually! More than 8,000 people work collecting past-due debts around the country.
That is a strong indicator of how many people have trouble paying off old debts. Of course, once this problem starts, it can lead to other issues. KingCash helps people learn about how failing to pay off old debts can lead to poor credit scores.
But what exactly is a credit score, and why does it matter so much? Read on to learn all about the most important reasons that it is valuable to invest in a good credit score.
What Is a Good Credit Score?
Without credit scores, most people would have difficulty finding people willing to lend them money. That is because credit scores are the primary way many lenders decide who they can trust with lent money and who they cannot.
Without it, it is much more challenging to give lenders an idea of how trustworthy or not someone is with loans.
This understanding clarifies what the credit score system is all about. Credit scores attempt to track how responsible people have been with their debts in the past. In a certain sense, your credit score is just a simple summary of how often you have been profitable for lenders to lend money to.
As a result, every time you follow the terms of a loan and make your payments on time, your credit score increases. That is an indicator that, considering how reliable you have been in the past, it is probably safe to lend you money in the future.
On the other hand, your credit score will go down if someone makes payments late or not at all. That indicates to lenders that someone has had difficulty following the terms of their loan agreements. From that perspective, you can see why lenders might be less inclined to loan money to people with lower credit scores.
The Advantages of Having the Best Credit Score
Higher credit scores provide a long list of advantages. In many cases, people with high credit scores have access to opportunities that people with low credit scores do not.
Even if the same opportunity is available to people with different credit scores, whoever has the higher credit score will probably have a more favourable version of the opportunity. For example, people with poor and excellent credit may both be able to acquire auto loans.
However, the auto loan agreement terms will be much more favourable for someone with high credit. Why is that?
When an institution offers an auto loan, they pay the automobile provider a significant amount. They then hope to make back that money plus some extra as borrowers make their monthly payments.
But what if someone has made late payments in the past or even stopped making payments at all? In such cases, the lending institution can end up losing money.
If they only collect on a handful of monthly payments, it will not come close to making up for all the money they spent in the first place. That makes it riskier for institutions to lend to people with poor credit scores.
Institutions could choose not to lend to people with poor credit scores. However, most institutions instead decide to continue to offer loans, but at less favourable rates.
How a Bad Credit Score Can Affect You
Specific lenders may not lend to you if you have a lower credit score. The lenders that do offer you loans will ask you to pay higher monthly payments across more months.
Sometimes, employers may use a consumer credit report to help them decide who to hire. For example, if you have a poor credit score, you may be skipped over by employers.
Fast Ways to Improve Poor Credit
Most ways of developing good credit take time. However, there is something you might be able to do to achieve a quick boost to your credit score.
When debts end up in collections, they act as an anchor to your credit score. They drag it down for as long as they are in collections.
However, if you pay off those debts, some of the anchors on your credit score can disappear. Many people may not have enough money to pay off old debts. However, some of the debts in collections may be surprisingly small.
With a small expenditure of money, you might be able to resolve one or more small debts in collections and enjoy an immediate boost to your credit score.
Other Ways to Improve Credit Scores Over Time
The rest of the ways to increase your credit score will take longer. Every time you make a monthly payment on time, you invest in a better credit score. Making your payments on time for long enough will start to increase your score more and more.
Eventually, lenders will consider you a reliable investment and offer you more loans and opportunities. At that point, you can enjoy lower interest rates and the rest of the benefits that come with a good credit score.
KingCash: Enjoy the Benefits of a Good Credit Score
The more you learn about the benefits of a good credit score, the more you will appreciate why so many people consider it essential.
The longer you go through life, the more occasions your credit score will affect the kinds of opportunities that you have. The investments in good credit that you make today will pay off for the rest of your life.
To learn more about developing good credit and finding fast loans when you need them, reach out to us at KingCash today.