Did you know that banks WANT you to repair bad credit?

Over 70% of Americans have a FICO score that is considered to be sub-prime — that is, a credit score lower than 670. When people have a credit report with a low score, it alerts lending institutions to the fact that they already have a history of being unreliable when paying their bills.

Customers with bad credit are penalized by banks in the form of higher interest rates and fees when they apply for a credit card or loan — or if their credit report is bad enough, a bank will simply refuse to give them credit at all.

You see, although some people believe that these extra costs are unfair, and merely take more money from those who can least afford it, in reality banks are not charities. They are in business to make a profit, just like all other businesses. For this reason, they need to see whether you are a good risk and likely to repay their money, or a poor risk who has already shown a tendency to renege on a financial contract.

Credit Reporting Bureaus were created to provide lenders with accurate information about those who wish to borrow money from them. The credit history provided by the Credit Reporting Bureau tells your bank what kind of customer you’ve been in the past… and because most people tend to repeat the patterns they’ve established in their lives, it also tells them what kind of customer you are likely to be in the future.

When you have a high credit score, a bank or credit card company will generally assume that you will be a great customer. You have a history of managing your current credit well, and you’ve shown that you pay your bills on time. When you apply to a financial institution for additional credit, the bank already knows that they are going to get their money back and that your payments are very likely going to be made on time and as agreed. When customers have high credit scores, banks will reward them with more favorable interest rates and lower fees.

However when a customer with a poor credit score applies for a loan or credit card, their credit report has already shown the bank that he or she has trouble repaying debts and may often be late with their bill payments. The bank is taking a much higher risk if they approve a credit application from a customer with a bad credit score. The poor credit score indicates that there have been financial issues in the past or the customer’s repayment history is bad, so the bank will charge higher interest rates and fees to offset the risk they take in giving this client money.

In banking terms, this is referred to as rate for risk. The higher the risk to the bank, the higher the interest rate that will be paid by the client.

No bank, lender or credit card company, or financial institution anywhere in the world wants to take legal action against a customer. They really don’t want to repossess your car, motorcycle, or boat, and they don’t want to foreclose on your mortgage and make you homeless. Really. As a business, they are much more successful and profitable when you when you pay all your bills on time and are therefore entitled to keep all your assets.

But if they are not receiving their payments on a timely basis, they are losing money and have little choice but to try to salvage the situation somehow. Banks will only resort to these tactics when it appears that they have no remaining alternatives to get their money back — the money you did promise to repay when you applied for and agreed to the terms of the loan.

So if you already have bad credit or if you’re behind on your payments, it’s vital that 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 pleasantly surprised by what they’ll be willing to do to help a profit-making customer to catch up any late payments.

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 you can save yourself a lot of money on interest rates and benefit from easy credit terms simply by being aware of how the system works and doing your best to comply with it.

So, if your credit score could use some improvement, it’s time to start taking some steps to repair your credit and reduce your interest rates today!

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