What Does “Bad Credit” Mean?

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Our credit scores are a dictating factor in most areas of our lives. Having a bad credit score can keep you from many important things. Thankfully, we specialize in credit repair and we can help you to get your subpar credit score on track.

The bad thing about credit is that there are interpretations. This is because there are three different major credit bureaus in the United States as well as FICO, the most widely used reporting company that there is.

Because there are four different entities issuing credit scores, this means that there are varying scores from each governing body. They use many of the same factors but there can be little differences that make your scores different from one bureau to the next.

For the purpose of this article, we will be using FICO’s credit score ratings. And there are five tiers to a FICO credit score rating: poor, fair, good, very good, and exceptional. Where you land on that scale can dictate the deals that you get when it comes to getting an auto loan, a mortgage, or a variety of other things.

Understanding What Is Involved in a “Bad” Credit Score

According to FICO, a “poor” credit score, which is the lowest rating that they have, goes from 300 to 579. It is also worth noting that just 4% of Americans have a credit score below 500 so that 500 level seems to be as close to the bottom of the barrel as it gets.

There are quite a few things that go into a “bad” credit score and it takes more than a missed payment or two to really sink a credit score. So if you have missed a payment or two, don’t worry; it shouldn’t drag a good credit score down that far.

But if you frequently miss payments, that is one way to really drag down your credit score. Your payment history accounts for 35% of your overall FICO score and more than a few payments missed or late can really put a hamper on your overall score.

It tends to be the bigger transgressions that do the most damage, however. A history of missed or late payments will be enough to sink even a good credit score substantially in a relatively short amount of time.

If your account has a repossession or foreclosure, that can drop a good credit score into “poor” territory instantaneously. These are major negative marks to have on a credit report and should be avoided at all costs where possible. It will take years to recover from something such as this on your credit score.

Most importantly, a bankruptcy is the very worst thing that can happen to your credit score. A bankruptcy is where your debts become so large and you fall behind so far on your payments that there is no choice but to ask to have them wiped away by the courts.

The downside with this is that it destroys your credit in the short term and makes it impossible to get most types of loan or credit cards. Even if your bankruptcy has discharged (typically two years after your bankruptcy filing is completed), it can take up to a decade to fully recover from that bankruptcy.

Avoiding a bankruptcy should be done at all costs. Call your creditors and discuss your situation with them; never just ignore them and your late payments. They may be able to work it out to make your monthly payment something more manageable and keep you from having to declare bankruptcy.

Getting Out of a Bad Credit Situation

It is important to keep in mind that no one gets a bad credit score overnight and no one gets out of it overnight, either. It takes time and diligence to get your credit score back on track but it is definitely possible.

The first is to make certain that you pay your bills on time. Even establishing a positive streak of credit can go a long way. Not only that, there are some basic credit cards that will expand your limit if you show a positive payment history.

And because your payment history weighs so heavily on your overall credit score, it is one of the areas where you can make the biggest impact. So above all else, pay your bills on time and you will be on your way to the credit score that you want.

The next biggest portion of your credit score is credit utilization. This accounts for 30% of your FICO score. This is the amount of your open credit limit that you are currently spending. It should be under 30% in order to maintain positive marks on your credit.

So, for instance, if you have a total limit of $5000 on your credit, you should have a total balance of no more than $1500. This shows to the reporting agencies that you are responsible with your credit limit and don’t lean too heavily on that credit to live.

Other things, such as your credit age and the type of credit, have a smaller impact but they all add up in the end. Even if you have bad credit right now, there are steps that you can take to turn it into a good score or better in a relatively short time.

Start by Looking at Your Score

Be educated about your credit score. Knowing where you stand is the first step towards doing something to improve it. When you know where your score is, you can see the negative marks on your report and know what to focus on.

Check your score frequently and be aware of any new additions to your report. By keeping an eye on your score, you can be aware of any potential incorrect marks and ensure that your credit score remains on track.

The important thing to remember is that your bad credit score doesn’t have to remain forever. Keep a positive outlook and do the right things and you can turn your score around before you know it.

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We encourage people across the nation to live a life with more options. The Grandaddio Credit restoration and advisory program is a great step in that direction. If your your credit reports are hurting we know how to help.

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