Did you know banks WANT you to repair bad credit?

Over 70% of Americans have a FICO score lower than 670, which is considered to be a sub-prime credit score. These people have a credit report that shows lending companies and creditors that they already have a past history of being unreliable with bill repayments.

Banks will happily penalize customers with bad credit by charging them higher interest rates, more fees and they can even refuse credit applications altogether if your credit is bad enough.

Most people believe these extra charges and higher rates are unfair and often claim that banks are heartless for charging more money from those who can afford it the least.

Unfortunately banks are not charities. They are in business to make a profit from lending out their money to you so you can buy things you want. When you borrow money, you sign a credit contract or loan contract that promises the bank that you’ll pay back their money along with interest on top. That’s how they make their profit. It’s their business.

This is precisely why they want to see if you’re the type of customer who is likely to repay your debts and bills and it’s why the Credit Reporting Bureaus keep your credit history and repayment history listed for them to view. It tells them what kind of customer you’ve been in the past. Because most people repeat habits and patterns in their lives, it also tells them what kind of customer you’re likely to be in future too.

If you have a high credit score, then a bank or credit card company already knows you’re likely to be a great customer. You’ve already shown that you pay your bills on time and you manage your current credit very well.

When a bank receives an application from a customer like this, they already know they’re going to get their money back. They know payments are likely to be made on time.

Customers with high credit scores are considered to be good risk or low risk customers and so banks will reward them with low interest rates and lowered fees.

However when a bank receives an application from a customer with a bad credit score, the bank has already seen a credit report that shows them that customer has trouble repaying debts and is often late repaying bills.

Customers with bad credit scores mean the bank is taking a much higher risk by approving a credit application. They need to make a profit in order to stay in business, remember? If a client doesn’t repay the money they borrowed, then the bank isn’t making a profit and they won’t stay in business very long.

Because the credit score is low, this means the customer’s repayment history is bad or there have been financial issues in the past and so a bank will raise interest rates accordingly.

In banking terms this is called ‘rate for risk’. The higher the risk to the bank, the higher the interest rate to the client.

No bank, lender or credit card company anywhere in the world wants to take legal action against a customer. They really don’t want to repossess your car and they don’t want to throw you out into the street to become homeless. Seriously, they make much more profit from you when you pay all your bills on time and keep all your assets.

But if the repayments aren’t made then they have no choice but to try and get their own money back somehow. Banks will only resort to these tactics if they feel they have no other alternative for getting their money back – the same money you promised to repay when you applied for the loan.

So if you already have bad credit or if you’re behind on your payments, it’s important you call your creditors and arrange for payment terms immediately. They won’t bite you and they won’t threaten you. Most importantly, they don’t want to lose a customer.

In fact, you’ll be surprised by what they’ll be willing to do to help a profit-making customer to catch up any late payments. When you have great credit and you’re making your repayments, you’re making them a profit.

If you’re falling behind, then they still believe you can catch up, fix your bad credit and be turned into a great customer. This is why they’re so willing to help you!

It also means that if you’re smart you can save yourself a lot of money on interest rates and benefit from easy credit terms just by playing their game.

Hopefully you understand more about why banks want you to repair bad credit. Now it’s time to start taking some steps to repair your credit and reduce your interest rates today.