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Bad credit, simply put, is what an individual gets when they don’t handle their money well, which results in a low credit score.

A credit score is a three-digit number that shows how trustworthy someone is when it comes to borrowing money; the higher your credit score, the more trustworthy you seem, but when someone has bad credit, it becomes harder for them to borrow money. This is mostly because lenders begin to see lending to them as a risk not worth taking.

An individual with bad credit might have trouble getting loans, credit cards, or even renting a home. To improve bad credit, it’s important to start paying bills on time, paying off debts, and using credit responsibly. Over time, these actions can help rebuild a better credit score.

Now that you’ve been briefly introduced to bad credit, let’s delve further into it shall we? 


## Causes of bad credit
Let’s take a look at some of the triggers of bad credit

## Late or missed payments on loans or credit cards
When one consistently fails to make payments on time or skip payments altogether for loans or credit cards, it demonstrates unreliability in managing your financial obligations. These late or missed payments can harm your credit history and contribute to bad credit. Lenders are wary of anyone with consistently unreliable loan repayment schedules.

## High level of outstanding debt
Carrying a significant amount of debt compared to your income can indicate financial strain and an increased risk of default. When one’s outstanding debt is high, it suggests a heavy financial burden and makes lenders more hesitant to lend and even extend further credit, contributing to bad credit. Smart lenders stay running from those deep in debt.

## Unresolved financial obligation or default
Failing to fulfill your financial obligations, such as neglecting loan repayments or neglecting to settle outstanding debts, can lead to defaults. Defaults indicate a breach of trust between you and your creditors, negatively impacting one’s credit score. No lender wants to bet on uncertainty.

## Limited credit history or lack of credit account
If you have a limited credit history or no credit accounts at all, lenders have little information to evaluate your creditworthiness. Without a track record of responsible credit management, it becomes challenging to establish trust and can make it harder to obtain credit, potentially leading to bad credit. Very few lenders would take a chance on a first-timer or a no-timer.

## Implications of bad credit in Nigeria
Let’s take a look at some of the consequences of bad credit

## Difficulty obtaining loans in the future
Bad credit can make it challenging to secure loans from lenders. Due to a history of credit problems, lenders may view you as a higher-risk borrower, resulting in potential loan rejections or limited borrowing options. Oh! Bummer 

## Higher interest rates and fees on borrowed money
When you have bad credit, lenders may consider you a higher-risk borrower, which often leads to higher interest rates on loans or credit cards. Additionally, lenders may impose additional fees or charges to compensate for the perceived risk. Higher fees spell trouble for the individual trying to get by 

## Challenges in accessing bank loans and financial services
Banks and financial institutions typically have stricter lending criteria, making it harder for individuals with bad credit to access their services. This limitation can include obtaining bank loans, mortgages, or other financial products that require a good credit history. Not a good look on your credit profile 

## Difficulty starting or expanding a business due to limited financing options
Bad credit can hinder entrepreneurs and small business owners from securing financing to start or expand their ventures. With limited access to business loans or lines of credit, it becomes harder to fund necessary investments and achieve business growth. Most dreams are funded by loans or startup capital. Bad credit means a lower chance of getting that business off the ground or funded at all. 

## Negative impact on employment prospects and rental applications
Some employers and landlords consider an individual’s credit history as part of their screening process. Bad credit can raise concerns about financial responsibility, potentially impacting your chances of being hired or approved for a rental property. HRs are definitely not keen on betting on an employee with an awful financial history.

## Improving a bad credit score
Here’s how you can improve bad credit

## Paying bills and debts on time to establish a positive payment history
Consistently making timely payments for your bills and debts is crucial in improving your credit. This is a key factor in boosting your creditworthiness and staying off the bad credit path.

## Reduce outstanding debt by creating a repayment plan
Creating a structured repayment plan to tackle any outstanding debt is essential in improving your credit situation. By consistently making payments and reducing your debt balances, you demonstrate responsibility and decrease your overall debt-to-income ratio. A win-win for all!

## Building a positive credit history over time through responsible financial behaviour
This is essential for building a positive credit history. It includes managing your credit accounts wisely if any, taking out loans responsibly, and avoiding excessive debt. Over time, your consistent responsible financial behavior will contribute to a much-improved credit profile. Again, we cannot stress how important good credit is to your financial reputation!

Avoiding bad credit is important, but what’s even more important is aiming for good credit. It offers you a smooth gateway access to loans and financial opportunities, lower interest rates, and improves your chances of snagging that job.

Good credit brings stability and expands your options for achieving the goals you’ve set out. By being financially responsible, paying bills on time, reducing debt, and building a positive credit history, you lay the foundation for a better financial future. Rockstars can’t be caught slacking when it comes to money. And that’s why Irorun always curates the best all-you-need-to-money-right articles 

We know you have questions, shoot us a quick message at support@irorun.com and let’s get you making the right money choices ASAP!

Bad credit: understanding causes and implications

Have you found yourself in a fix and can’t seem to pay back that loan you owe?

Is your lender hounding you to pay off your outstanding debts?

We understand your first instinct may be to hide and play coy with your lender. But here’s the truth of it all; YOU’RE MAKING IT WORSE!

We understand your plight and have done the work for you. Keep reading to find out what to do when you struggle to pay back that loan

## Assess your financial situation
A lot of people struggle with loan repayment and end up defaulting, mostly because they may be dealing with some financial crisis that affects their loan repayment.

The first step to be taken to fix this is to assess your financial situation. This may not seem important at first, but if one takes the time to look at their current income level and stability, and analyze their monthly expenses. They’ll find areas where one can cut costs to allocate for loan repayment.

As we always say, it’s important to know where you stand financially. It helps you come up with effective solutions to manage your loan payments. This means assessing your available funds and making practical decisions for repaying your debts.

## Communicate with your lender
Don’t ghost your lender! It’ll do you more harm than good. Regular communication with your lender when you’re experiencing difficulties with loan repayment is necessary. Discussing openly with your lender can clarify your loan management options.

This includes learning about potential repayment plans, negotiating revised loan terms, and exploring temporary relief options. Communicating with your lender promptly can help you avoid penalties, protect your credit score, and establish a more manageable repayment plan that fits your current financial situation. Lenders are often willing to work with borrowers who demonstrate a genuine intention to fulfill their obligations.

## Explore loan restructuring options
Now that you’ve communicated with your lender, exploring the loan restructuring options given to you is the next step. Loan restructuring involves considering various alternatives such as loan modification, consolidation, extended repayment plans, or income-driven repayment plans. Each of these options offers you unique benefits and considerations that can be tailored to your specific needs and financial situation.

This is why we keep doubling down on early communication with your lender; discuss the available options, and evaluate their implications in terms of interest rates, repayment terms, and overall financial impact. This helps you find the best solution for your situation and manage your loan repayment effectively.

## Explore additional income stream
We all need the extra income and that’s why obtaining secondary sources of income can be very helpful when one struggles with loan repayment. Seeking out opportunities for side jobs, freelancing etc can increase one’s overall cash flow.

Additionally, one can also start an online business or consider part-time employment to provide extra income that will be strictly allocated towards loan payments. Trying out these options can make it easier to meet your loan obligations with ease.

## Strict budget and payment plan
One who fails to plan, plans to fail.

This holds true for money matters as well. This is why we consistently preach the gospel of good budgeting. A strict budget and payment plan is just what any loan defaulter needs to fix their loan repayment struggles.

By making use of a budget, one can carefully manage their income and expenses, allowing them to allocate funds towards loan payments effectively.

This involves tracking income sources and analyzing expenses to find ways to cut costs and free up money for loan repayment. With a structured payment plan, the individual can set up a clear schedule for timely, consistent payments to their lender.

Following this plan helps you control your finances, stay on top of loan repayments, and achieve your financial goals.

... 

If you’re having difficulty paying back that loan and would want to ask more questions, send us a message at support@irorun.com and we’ll get you back on track!

What to do if you struggle with loan repayments?

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The ultimate search is on!

Have you signed? No?

Pheww! Glad you haven’t…

Before you say “yes!” to that loan, you must read, re-read and understand the terms and conditions applied.

And to make the process a lot less boring for you, we’ve written out 10 of the most necessary things you’d find in a typical loan terms and conditions AKA T&C.

Check them out!

## Principal and interest
When you take out a loan, your repayments are broken up into two parts — principal and interest. The principal is the original amount you borrow, while interest is the cost of borrowing the money.

Both are clearly stated on your loan terms and condition, and may just be the most important aspect. This is because whatever principal and interest rate are written on your loan terms and conditions, that’s what will be accepted during the loan transactions. Read the fine print to avoid stories of “I didn’t know”.

## Repayment terms
The loan terms and conditions also contain your repayment terms which are how long the loan is going to last and the repayment schedule.

This helps you get an idea of how you can make a budget that contains debt settlement. It also states how long you can go without paying your loan before you fall into default.

## Processing fee
The processing fee for a loan is a fixed non-refundable fee associated with the loan that helps the lender cover costs and the risk of approving the loan, as well as any fraudulent transactions that may occur.

This helps give you an idea of why you may not get the complete loan amount (for instance you getting credited with #49,000 instead of #50,000 when you apply for that amount). All these extra fees are always stated in a typical loan T&C.

## Loan purpose
When you are asked about the purpose of your loan, you believe the lender is asking because they want to know if that amount is worth it.

While this is true, the lender also takes a record of the purpose of the loan and builds restrictions based on the purpose given for the loan (this entails how you can and cannot spend your loan). Although this varies from lender to lender and also depends on what kind of loan you apply for.

## Collateral
The collateral chosen for the loan is placed in the terms and conditions for the benefit of both parties.

After the loan transaction is finalized, at no instance can the lender claim something else as collateral. But if the borrower is unaware of the full details of the collateral, he/she can fall prey to an unethical lender who may take advantage of his/her naivety. Read your terms and conditions o!

## Income stability status
Your creditworthiness and proof of your employment status or stable source of income are also included in your terms and conditions.

This is to show that the borrower was proven creditworthy of the loan that they applied for and that they could afford to live suitably even in the event of loan repayment.

## Third parties
This is any co-signer or guarantor to the loan. It shows proof that another individual served as a witness for the loan or that they’ve been tasked with the repayment of a loan in case the original borrower defaults and that they did so willingly and not under duress.

## Lender’s right in case of default
This includes all that the lender can legally do if the borrower defaults on the loan or makes late payments.

These rights most times include the collateral being seized by the lender, the lender’s right to sue the borrower, the lender’s right to issue penalty charges for any late payments made etc.

## Loan term renegotiation
This has to do with any provisions made for modifying the loan terms in the event that the borrower can’t meet up with loan repayments or could not afford loan repayments for any specific reason.

This will state if the lender is open to renegotiation and under what terms this renegotiation will occur.

## Legal justice
This is the governing law and jurisdiction for any dispute related to the loan. It states if a defaulter will be taken to the supreme court of law or any minor court of law to settle any dispute related to the loan, or if the defaulter will be charged with a fine.

## Blacklist (Bonus)
This states the governing bodies responsible for blacklisting loan defaulters, it gives you an idea of who you will be reported to when you default on a loan (it’ll also help you know who to go to when you get blacklisted). An example of these governing bodies is the credit bureau, check out who they are and what they do.

…

For further questions or clarifications, send us a message at support@irorun.com, and we’ll be more than happy to guide you in taking your first loan!

What is found in a typical loan terms and conditions

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Bad credit: understanding causes and implications

What to do if you struggle with loan repayments?

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What is found in a typical loan terms and conditions

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