How to avoid bad credit is one way that should be done, because anticipating is better than repairing.
Default or bad credit itself is a situation where a debtor (borrower) cannot pay debt or credit installments.
This problem can occur because in the middle of the installment period, the debtor does not have enough funds to pay it off. Until finally experiencing dismissal, delays, requests for extensions and so on.
If this situation occurs, paying off debt will be difficult, especially in installments.
Debt is getting bigger due to late fees and interest that continues to run. Finally failed to pay.
Factors Causing the Occurrence of Default
There are several factors that cause this problem to occur. Basically, the cause arises from the debtor and the creditor himself. Here are some common causes of bad credit, including:
Lack of financial planning by the debtor
At the beginning of the loan, the debtor is usually too imposing on the amount of credit. This large amount ultimately burdened the debtor and neglected his obligation to pay installments according to maturity.
Creditors who offer loans are too large
Not only from debtors, but this situation is also often caused by creditors. These lending institutions offer loan amounts that are too large without conducting surveys of potential borrowers regarding financial history, employment status and so on.
Therefore, to avoid the factors that cause bad credit, it is better for the creditor to tighten the credit analysis team.
How to Avoid Bad Credit
Then how do you avoid bad credit? Check out the explanation below:
1. Borrow according to your needs and financial capabilities
The thing to remember when you want to apply for credit from anyone, including banks, is to borrow according to your needs and financial ability. This means that the proposed ceiling is not much bigger than the requirement.
In addition, according to financial capabilities. Ideally debt does not exceed 30% of salary or income. If it's more than that, you can experience debt default.
Allocate debt repayments of 30% of salary. With an allocation of that size, you don't need to sacrifice the cost of your daily needs because it has been budgeted for 40% -50% of your monthly salary. This includes investment budgets, insurance, emergency funds, and entertainment.
2. Avoid Consumptive Debt
The next way to avoid bad credit is to avoid consumer debt, even though everyone who applies for a loan is the right of every individual.
Their use is also different. However, it is better to take out debt for productive activities, such as venture capital, buying work equipment, property investment, and others.
So the loan will be useful. Even produce, so that money from business capital and work can be used to pay debts.
Avoid using debt for consumptive purposes to fulfill lifestyle or prestige. Consumptive spending has a lot of disadvantages, it doesn't produce anything except spending money.
3. Do not neglect to pay debts
The consequence of borrowing or being in debt is having to pay on time. Moreover, if you borrow money from a bank or fintech lending, if you are late, you will be subject to a late fee. This will increase your debt.
Do not deliberately avoid paying debts. For example paying installments is postponed because the money is used for other needs or needs. If you have been fined, then pay it so it doesn't get bigger.
Impact of Default
1. Creditors will be short of funds
When the debtor applies for credit, he will receive money from the creditor or bank. Likewise with banks, banks will provide large amounts of money to debtors at once.
If there is a traffic jam like this, then the money cannot be rotated and ends up the bank or creditor will be short of funds. Of course this will adversely affect the creditor's business activities.
2. Debtors can be blacklisted
If a debtor has a history of bad credit, then this history will forever be recorded by the bank's system. These red notes can make it difficult for debtors to even be unable to apply for credit again in the future.
This history will be known when someone does a BI checking. In fact, several companies have implemented Fed Checking for their employees. With this history, it will certainly reduce one's credibility.
3. Threats to the country's economy
The large number of customers trapped in this situation will make banks look for other ways to improve their business capital structure.
One of them is by suppressing credit applications and reducing credit distribution in various sectors that affect the country's economic development.