What Causes Low Credit Score Part I

Thomas Parker is a low-income employee working as a cleaner at a private company. Each month, his paycheck is only enough to pay for his family’s utility bills,food, and other expenses such as allowance for the kids, some extra amount for an emergency fund, and if there’s further extra money, pay for credit card bills and his other previous loans.

But one day going to work, Thomas’ car suddenly broke down in the middle of a busy road,leaving him helpless, thus he has no choice but to call in sick, call a towing service and have his car checked at the mechanic. The diagnosis, his car needs major repairs. Thomas goes home broken-hearted. Needless to say, he needs a large amount of money to pay for all the repair costs. His insufficient income is barely enough for his general daily needs. He needs other sources of funds.

So then Thomas decides to go for an unsecured personal loan at a trusted bank. He applies and waits patiently for days for the verdict, anticipating if he will get the loan money soon. Finally, the unexpected decision came- his application was denied. Thomas, feeling down, wonders why. The bank answered, he has a low credit score so he can’t be considered for a personal loan. What he needed was a high credit rating, somewhere between 650 and up in order to consider him as a good debtor. Thomas only has 600.

So Thomas wonders- why does he have a low credit rating? After doing research he found out that he can get a copy of his credit score online. And so he immediately got a copy and this is what he found.

A credit score is what credit bureaus give him according to his financial performance over the last few years. He is scored accordingly by his credit history, repayment patterns, bankruptcies, loans, and so forth. His credit score is what banks consider as a benchmark in considering him as either a good credit risk or not.

A credit history is a list of all the loans and repayments that he has made. On the list, it indicates whether he paid on time, how much he paid each repayment, how many loans did he have and has currently.His available credit at a certain period and so forth. Whenever he paid on time, he receives a positive score . However, whenever he misses on a payment date, his score becomes negative.