Causes Of Bad Credit

What Causes of Bad Credit? Overview, List of Main Causes

BySean McKlveen
Causes Of Bad Credit
What Causes Of Bad Credit? Overview, List Of Main Causes 3

Bad credit is something that almost everyone wants to avoid. It can lead to a bad reputation in the business and can make you have a hard time getting approved for financial products. If you are one of the millions of people that does not have a lot of money to spend and you need a way to borrow money to fulfill your financial needs, bad credit can be the deciding factor that ultimately does not allow you to move forward. Without any credit history, you are not able to apply for any credit cards or loans. Bad credit can be caused by a variety of factors. The most common causes of bad credit include:

Always Review Your Credit Report

After you see that you’re getting ready to see a collections agency, you may be tempted to “make changes” to your credit reports in an attempt to correct any errors that you think could damage your credit. However, these changes could actually hurt your credit in more ways than one. That’s because bad credit could actually stand for something else. Specifically, if you have a delinquency on your credit report, but you made a good faith payment, then it’s really good and you’re good to go. On the other hand, if you have too many late payments and have missed a good-faith payment a few times in a row, it could have a negative impact on your credit score.
Backing up Payments

If you’ve ever applied for a loan, credit card, or any type of financial product, then you’ve probably heard about the three “F’s”: limit, debt, and return. The problem is that the three Fs often don’t necessarily go together. Too much credit can hurt your credit score if you don’t know how to manage your debt. That’s because any time you take on a lot of debt, you start paying interest on it at a higher rate. And the longer you have a debt, the more interest you have to pay to make the same amount of money. This is why it’s best to keep your credit utilization ratio to a maximum of 30 percent.

On the other hand, too little credit can hurt your credit score, especially if you’re paying off debts with the help of credit cards. However, too little credit can also happen when you’re not taking on a sufficient amount of debt.

Top 10 Causes of Bad Credit:

No matter what you are, you need a good credit rating. If your credit is bad, it can make it much harder for you to get a car loan or a house. That’s because the bad credit is difficult to repair since you are literally losing money by not paying on time. But how much bad credit do you have, and what can you do about it? Here are the ten main reasons for bad credit. It can be very easy to fix all of these, and I’ll be back to teach you how to do just that.

1. No Credit History

If you don’t have a credit history, lenders don’t know you exist, and if they did, they wouldn’t know enough about you to approve your application for a loan. Even if they approved, they might not approve you for a car loan or a mortgage.

Here’s how to get credit:

  • Step 1: Get a bank account with a credit union or credit union’s subsidiary. A credit union is the same thing as a bank except for the money in the account is legally owned by the organization.
  • Step 2: Get a credit card from a bank subsidiary.
  • Step 3: Get a loan from a credit union or bank subsidiary, and pay it off in full and on time every month.
  • Step 4: Get an auto loan from a credit union or bank subsidiary, and pay it off in full and on time every month.

You can do all of this using a credit union. But if you want to take this to the next level, here are some other options for getting credit.

2. Broken Credit Record

You might have heard of this before. A broken credit record is when someone reports a payment that isn’t yours, so it goes to a collection agency.

Here’s how you fix this:

  • Step 1: Contact the collection agency to tell them it’s a mistake.
  • Step 2: Contact the credit bureau and tell them to fix the record.
  • Step 3: If you want to, get a copy of your credit report and put in your own report that your payment was accidentally put on the report.

3. Low Credit Score

If you’re just starting out, a credit score of 300 and higher is considered good, and over 700 is best. But your score will eventually decline as you do things like make late payments or take out more credit than you can afford.

Here’s how to fix this:

  • Step 1: Work on your score by paying all your bills on time and being responsible.
  • Step 2: Get a credit card with a 0% interest card for the first 18 months.
  • Step 3: When you get approved for your first credit card, use the card and pay it off in full and on time every month.
  • Step 4: When your first credit card is paid off, open a second credit card.
  • Step 5: Pay that second credit card off in full and on time every month.
  • Step 6: After a year, apply for a mortgage.
  • Step 7: Apply for a car loan.

4. Medical Issues

Your credit score might also be affected by health issues. If you have a job, the fact that you are unemployed or if you had to leave your job, it may affect your credit score.

Here’s how to fix this:

  • Step 1: Ask your health care provider if they will contact your medical records so you can get an official copy.
  • Step 2: If you need to get treatment for your medical issues, contact the doctor and inform him that you are having trouble paying your bills.
  • Step 3: Request a payment plan and find a way to pay your bills while you get treatment.
  • Step 4: Once you get better, contact your provider and tell them you’re doing well and you will be making full payment.

5. Child Support

Some people might have more difficulty paying child support because of issues with child custody.

Here’s how to fix this:

  • Step 1: If you’re unable to pay child support, you need to go to court and ask to reduce your child support obligation.
  • Step 2: Check your credit report and see if you’ve been ordered to pay additional child support. You can dispute the order and request a new review of the order.
  • Step 3: You can also apply for a payment plan with the state of Oklahoma and get a lower rate.
  • Step 4: Check your credit report to make sure you’re not being over-billed for child support.

6. Collecting child support

After you have been ordered to pay child support, it’s important to follow the order. If you don’t, a collection agency might be able to get you into legal trouble.

Here’s how to fix this:

  • Step 1: Make sure you get a final judgment or order signed by the court that shows the amount you owe and how much the state will get from you.
  • Step 2: If you don’t agree with the final judgment, request an attorney to write you a letter asking for changes.

7. Job or No Job

In this situation, you might not know why your credit score dropped. You could have gotten a job, but your company folded before you finished the contract. You might be due unemployment compensation. Or you could be due for backpay. Or, you could be doing exactly what you want to be doing and just not having the chance to show it.

Here’s how to fix this:

8. Unpaid Bills

I know what you’re thinking. If you’re out of work, how can you pay your bills? This happens to everybody, even those who are employed. If you don’t have a job, don’t worry, this won’t happen to you. You can avoid all of this by finding a job. But if you are unable to find a job, you might not be able to afford to pay your bills. So how can you pay them when you don’t have a job?

Here’s what you can do:

  • Step 1: Contact the credit bureau and ask them to put the bills on a payment plan.
  • Step 2: If you’re able to work, contact a temp agency, and ask them to give you a job so you can pay the bills.
  • Step 3: Work part-time, but make sure that you’re working enough hours to be able to pay the bills.
  • Step 4: If you’re still unable to pay the bills, get a payday loan.
  • Step 5: When the payday loan is paid off, make sure you don’t get a new payday loan.

9. Overestimated Income

You’ve probably heard the saying, “If you can’t get a job, get a $30,000 job!” There’s some truth to that. While it is true that a low income can hurt your credit score, it can also hurt your ability to get credit. There’s a reason why so many people are turned away when they’re applying for credit:

“Sometimes if you get turned down for a low-income loan, you could have just not paid your bills.” -Barbara Thompson, Director of Credit Administration for CFP Board

Here’s how you fix this:

10. Incomprehensible Fees

Have you ever received a bill in the mail with a fee listed on it that you had no idea how to pay?

If you have, then you know how it feels to get taken advantage of by those who you thought you could trust.

Here are some ways to fix this:

  • Step 1: Call the credit bureau and explain the situation.
  • Step 2: Tell them that you will not be paying these fees, and that they are not accurate.
  • Step 3: If you want a representative to call you back, call them yourself.
  • Step 4: If you want a prepaid card, call them yourself and ask them to send you one.
  • Step 5: If you have extra money, take that and go to a local store that sells prepaid cards, and buy one for a few dollars.

Now that you’re on the road to having a great credit score, take a look at some of our online courses on improving your credit score. They’ll help you learn the essentials of building and maintaining good credit and will teach you what you need to know in order to repair your credit.

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