What is Situational Bad Credit?
When you’re applying for a car loan with bad credit, potential lenders will look at several factors when considering you. One of the most important factors that can make or break your approval is whether you have situational bad credit or habitual bad credit. What is situational bad credit? This is a term used to describe someone whose bad credit score is due to one particular financial setback. In this guide, Green Light Auto Credit provides a closer look at how situational bad credit differs from habitual bad credit, and how it can change the way a lender views your potential as a borrower.
Explanation of Habitual Bad Credit
When someone has habitual bad credit, it shows a lender that they have a documented history of not-so-great financial decisions, making them a high-risk borrower. Here are some common habitual bad credit items that stand out as red flags to lenders:
- Multiple payment delinquencies on numerous active accounts
- History of late/missed payments
- A debt-to-income ratio that shows to be consistently high
- Multiple bankruptcies
- Repossession(s) not tied to bankruptcy
St. Louis individuals who have habitual bad credit may have a harder time getting accepted by a lender, and it can be especially difficult to secure favorable terms.
Situational Bad Credit vs. Habitual Bad Credit
Two people in Herculaneum could have a similarly bad credit score, but if one has situational bad credit and one has habitual bad credit, their circumstances are not quite the same. While habitual bad credit results from a history of financial irresponsibility, situational bad credit can result from an unexpected financial setback experienced by someone who is otherwise very careful with their finances. Here are some examples of common occurrences that can lead to situational bad credit:
- A sudden loss of income or employment
- Costly medical bills resulting from a sudden illness or injury
- Divorce
As you may have noted, the above situations could happen to anyone unexpectedly. If you’re applying for a loan with bad credit that is proven to be situational by the lender, your chances of getting approved are much higher. If you had a clean credit history prior to your situational bad credit, you might even get an interest rate that is not much higher than borrowers with good credit.
Get Approved With Green Light Auto Credit!
No matter the circumstances of your bad credit, Green Light Auto Credit is here to help drivers from Florissant to St. Louis secure auto financing that works. Apply for pre-approval today or contact us if you have additional car finance questions.
