*This is more applicable to countries with a credit scoring or tracking system.
Background of Bad Credit
To better understand the term “bad credit”, one needs to first understand the credit system. The credit system is a system that allows people to acquire goods and services on credit while earning points that are determined by how quick or late they pay up.
Although Nigeria does not largely depend on or use the credit system to provide goods and services to consumers, many developed and emerging countries do.
Having a bad credit history or rating essentially shows a person’s negative credit behaviour.
There is a scale that typically determines how bad or good a credit rating is. A person is considered to have a good credit rating when they have a credit score between 690 and 719 out of the popular range of 300-850, while 720+ are considered exceptional credit scores.
In many cases, 580 is considered a bad credit score and in some cases, it starts from 630 and under. Bad credit scores are a disadvantage because people with negative ratings find it difficult to obtain loans or secure a credit card.
Other disadvantages of a bad credit score
- People with bad credit ratings are typically subjected to paying higher interest on loans if they are able to get loans at all.
- A bad score makes it hard to find apartments or housing.
- Insurance premiums are typically higher for people with negative credit ratings. This is the insurance company’s way of looking out for themselves if the person ends up filing more claims.
- It makes it tough to seamlessly cover utilities. There are cases where utilities such as power, water or gas are inaccessible.
Key points
- In a credit system, bad credit refers to having a low or negative credit score when compared to the overall score.
- Bad credit is considered to be disadvantageous because it limits the opportunities one can get in a country that relies heavily on the credit system.
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