Do you ever feel like your credit score is holding you back? You’re not alone. Millions of Americans struggle with bad credit, which can make it difficult to get loans, rent an apartment, or even get a job. But what exactly is bad credit and how can you fix it?
In this comprehensive guide, we’ll delve deep into the world of bad credit, exploring its causes, consequences, and most importantly, the steps you can take to improve your credit score and get back on track
Understanding Poor Credit History
Your credit history is a documentation of your past financial actions, such as how you handle debt and make bill payments. Lenders and other businesses use it similarly to a financial report card to determine your creditworthiness. A clean credit record demonstrates your financial responsibility and reliability in repaying debts. Conversely, a poor credit history suggests that you might be a risky borrower.
Several factors can contribute to poor credit history, including:
- Late payments: This is the biggest factor affecting your credit score, accounting for 35% of your FICO® Score. Even a single late payment can have a negative impact.
- High credit utilization: This refers to the amount of credit you’re using compared to your total available credit. Ideally, you should keep your credit utilization below 30%.
- Collections: When you don’t pay a debt, it can be sent to collections, which can severely damage your credit score.
- Bankruptcies: Filing for bankruptcy can stay on your credit report for up to 10 years, making it very difficult to get credit.
- Charge-offs: When a creditor writes off a debt as uncollectible, it becomes a charge-off, which can also negatively impact your credit score.
The Consequences of Poor Credit History
Having bad credit can have a significant impact on your life. It can make it difficult to:
- Get a loan: Lenders are less likely to approve loans for people with bad credit, or they may offer higher interest rates and fees.
- Rent an apartment: Landlords often check credit scores before approving a tenant, and they may reject applicants with bad credit.
- Get a job: Some employers check credit scores as part of the background screening process, and they may be hesitant to hire someone with bad credit.
- Get insurance: Some insurance companies use credit scores to set premiums, so you could end up paying more for insurance if you have bad credit.
- Get a cell phone contract: Cell phone providers may require a credit check before approving you for a new phone or plan.
Improving Your Credit History
The good news is that bad credit doesn’t have to be permanent. You can take the following actions to repair your credit history and get your life back on track:
- Pay your bills on time: This is the most important thing you can do to improve your credit score. Set up automatic payments to ensure you never miss a due date.
- Pay down debt: The amount of debt you owe makes up 30% of your FICO® Score. Focus on paying off high-interest debts first to reduce your credit utilization and improve your score.
- Become an authorized user: If you have a friend or family member with good credit, ask them to add you as an authorized user on their credit card. This will give you access to their credit history and help you build your own credit.
- Get a secured credit card: A secured credit card requires a security deposit, which becomes your credit limit. Use the card responsibly and pay your balance in full each month to build positive credit history.
- Dispute errors on your credit report: Check your credit report regularly for errors and dispute any inaccurate information. This can help improve your credit score immediately.
Additional Resources
If you’re struggling with bad credit, there are many resources available to help you get back on track. Here are a few:
- Experian Credit Education: Experian offers a wealth of free resources on credit, including articles, videos, and tools to help you understand and improve your credit score.
- National Foundation for Credit Counseling: The NFCC provides free credit counseling and debt management services to help you get out of debt and improve your credit score.
- Consumer Financial Protection Bureau: The CFPB is a government agency that provides information and resources on credit and debt.
Remember, improving your credit score takes time and effort. However, you can overcome bad credit and accomplish your financial objectives by following the instructions provided in this guide.
Here are some additional tips for improving your credit history:
- Avoid opening new credit accounts: Every time you apply for a new credit account, a hard inquiry is placed on your credit report. Too many hard inquiries can lower your credit score.
- Keep your credit accounts open: The length of your credit history is a factor in your credit score. So, it’s best to keep your credit accounts open, even if you’re not using them.
- Monitor your credit report regularly: Check your credit report at least once a year for errors and dispute any inaccurate information.
- Be patient: It takes time to improve your credit score. Don’t get discouraged if you don’t see results immediately. Just keep following the steps outlined in this guide, and you’ll eventually see your credit score improve.
With a little effort, you can overcome bad credit and achieve your financial goals.
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As long as you make efforts to raise your credit score, having a low credit score is not fatal.
While obtaining financial milestones like approval for a mortgage or auto loan may be more challenging if you have bad credit, there are steps you can take to improve your credit score.
When deciding whether to grant you credit, including loans or credit cards, lenders carefully review your credit report. One of the factors they consider is your credit score. This three-digit figure indicates how likely you are to return loans to you based on an analysis of your financial behavior, including debt and payment history.
In order to improve your credit and raise your chances of getting approved for loans and credit cards, you should act as soon as possible if your credit score isn’t that great.
The credit score range that is deemed bad, how to raise a low credit score, and how to obtain a free credit report are all explained by CNBC Select below.
How a bad credit score can hurt you
Denials for credit
It can be challenging to achieve many goals when you have a low credit score because it lowers your chances of being approved for credit cards and loans. You’ll need good or exceptional credit to use a balance transfer card, like the Discover it® Balance Transfer, to pay off debt. Additionally, it will be very difficult to find a credit card that accepts bad credit if you want to accrue rewards or get privileged travel benefits.
Less favorable loan terms
In comparison to applicants with good credit, it’s likely that you will be granted credit with less favorable terms, like high interest rates or yearly fees. For instance, the OpenSky® Secured Visa® Credit Card, one of CNBC Selects’ top credit cards for people with bad credit, has an annual fee of $35, but there are no other options.
Limited credit card choices
Bad credit restricts the types of credit cards you can apply for; secured cards will be your main options. Even though a secured credit card, like the Capital One Platinum Secured Credit Card or the Discover it® Secured Credit Card (see rates and fees), can aid in credit restoration, you must pay a $200 security deposit in order to be eligible for an equivalent credit line.
Be aware that you may not always be granted approval for a credit card that requires bad credit, even if your credit score is in the poor range. Card issuers look at more factors than just your credit score, including income and monthly housing payments.
How To Fix A BAD Credit Score ASAP
FAQ
What is considered poor credit history?
How do you explain poor credit history?
What causes poor credit history?
What is a history of bad credit?
What is a bad credit score?
On the FICO ® Score ☉ 8 scale of 300 to 850, one of the credit scores lenders most frequently use, a bad credit score is one below 670. More specifically, a score between 580 and 669 is considered fair, and one between 300 and 579 is poor. The table below offers more detail on where scores fall.
What if I have a bad credit history?
If you have a bad repayment history on one or more credit card or loan products, you may have an adverse credit history. You can look at your credit score as an indicator of having an adverse credit history, with a FICO Score below 669 typically being considered as fair or poor.
What causes a low credit score?
A low score can be caused by one of many possible factors, or a combination of them. A few examples include: Late or missed payments. Using too much of your credit limit. Filing for bankruptcy. Identity theft or fraud. Bad credit behavior or bad luck could result in a low score. Learn more about reasons why your credit score may not be going up.
Can a bad credit history be repaired?
You can repair a bad credit history but it will take time. You should regularly check your credit score to see which negative factors are the most important. In addition, you should pay your bills on time, reduce your credit card debt, and only apply for new credit sparingly.