September 22, 2021

Disastrous Credit Myths

Think you know everything there is to know about credit? Well, think again.

Several common misunderstandings can lead you down the path to bad credit and eventually bankruptcy.

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Repairing Your Credit: A Bad Credit Overview

Financial industry analysts estimate that as many as 25% of all Americans have poor to bad credit.* But do you know what “bad credit” actually means?

• What is meant by “bad credit”?

• Is your credit bad?

• What can you do to fix poor credit?

Defining Bad Credit

If you have a car loan, student loans, a mortgage, a boat or motorcycle loan, or a credit card of any type, then you make some of your purchases on credit. Simply put:

• On-time loan and credit card payments, including pre-payment = good credit.

• Late payments, default, home foreclosures and short sales, long-term unemployment, and bankruptcy = bad credit.

Financially speaking, bad credit is defined as a low credit score (599 or less) and a poor credit rating, while 700 or higher is usually considered a good score and equal to good credit. These numerical indicators give banks and lenders a standardized measure of consumers’ debt risk.

How to Check Your Credit

Good or bad credit aside, each of your credit accounts and associated transactions are all documented by the three major credit reporting bureaus: TransUnion, Experian, and Equifax. This record of your credit is aptly called your credit report or your credit record.

• Check your credit reports: According to the Fair Credit Reporting Act of 2001, you have a legal right to request one free credit report from each of the above three bureaus annually, by visiting Beware other websites that promise you “free” credit reports then charge you a fee.

• Check your credit score: Before you pay money for your credit score, find out if your bank offers any access to your score if even a one-time look. What’s “good” or “bad” is not written in stone, but most sources suggest that anything below 599 is a poor score and anything over 700 is good.

Fixing Your Bad Credit

You have your credit reports and your credit score, now what?

• Admit that you have bad credit and a poor credit record

• Review each of your credit reports. Make sure all account information is correct, including your personal information as well as account balances and payment histories. Contact the agencies to make any corrections.

• Create a personal or family budget

• Write down everything you buy

• Make all your credit payments—at least the minimum required–on time or before

• Cut up credit cards and either pay cash for purchases or don’t buy

• Talk to a financial advisor—your bank may actually provide one that offers free consultations.

Making on-time payments and steadily making progress toward paying off your credit accounts will surely help raise your credit score, moving you from “bad credit” to good.

For additional details on getting your free credit reports, read the Federal Trade Commission’s (FTC) guide, “Your Access to Free Credit Reports.” ( )

*Marketplace, American Public Radio,

Understanding The Meaning Of Bad Credit

Having a good credit rating is essential if one is trying to obtain a loan, buy a house, car or merchandise which is to be paid off over a period of time. Lenders take this rating as an indication of the individual’s habit of making their payments regularly and on time. This has a great deal to do with whether one’s application for the purchase is approved because of being labeled a bad credit risk.

When bills are not paid in a timely manner, it is noted and, if continued, a report is sent to the credit reporting company. These reports are calculated to form an overall score and, if there are a number of negative reports, one is tagged as a bad credit risk. This score is what lenders look at when considering contracts that require regular payments.
Bad Credit

Some people, who become overwhelmed with debts they are unable to pay, choose to file for bankruptcy. Chapter 7, of this law, will wipe out unsecured debt but will not eliminate fixed debt, such as mortgages, child support and student loans. Chapter 13 is for people who can repay the debts within three to five years. Under this chapter there is a limit on how much debt is involved. Going either route will have a negative effect on one’s credit score.

Reports from lenders and merchants, regarding one’s record of payment, is sent to a number of credit reporting companies, such as Equifax, Experian and TransUnion. These companies report these scores to FICO (Fair, Isaacs, & Co), who combines them to reach a final credit report score. This score can range from 300 to a perfect score of 850. A score of 723 is the median with scores below 620 considered a risk. Scores of 690 to 720 are considered excellent for securing credit.

The scores are based on a number of things. Mainly, they are payment history, outstanding debts, new credit, credit history and credit currently being used. The scores from the various credit reporting companies may vary according to their scoring system which is why, if checking with more than one company, they may not match.

On FICO ‘s system each facet receives a certain percentage to reach the overall score. Payment history counts 35%, outstanding debts-30%, length of credit history-15%, kinds of credit-10% and recent credit-10%. All of these are factored in to determine if one has a bad credit rating.

While having bad credit will not necessary keep one from being able to obtain a loan, or make a purchase, it certainly will result in higher interest. This can be very costly and is usually extended for a long period of time. Even with this kind of financial transaction, the lender wants to be sure that they are going to receive the payments in a timely manner.

There are many different sites, on the Internet, that state they will repair bad credit or help one consolidate their bills to get their credit score back in good standing. When considering going this route it is very important to check these sites out carefully to be sure they are a reliable company and have a good track record.

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