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What is Bad Credit, How We Get it and How to Escape it

Posted on September 13, 2010

Credit is your willingness and ability to pay back money you’ve borrowed. Unfortunately for some, your credit is measured by how you’ve handled credit cards and loans in the past.

If you have good credit, you’ve paid your bills on time and you haven’t taken on more than you can afford. On the other hand, people with bad credit have not paid their bills on time and have, more often than not, overextended themselves with borrowing.

Bad credit is most often defined by a credit score – which is a numerical summary of the information in your credit report. A credit report contains information about all your credit and loan accounts – when the account was open, how much you borrowed, and whether you paid on time.

Credit scores range from 300 to 850. Higher credit score are better, while lower credit scores are worse. Generally, if your credit score is below 620, you have bad credit. Between 620 and 720 is good, and credit scores above 720 are the best.

What Makes You Have Bad Credit

Your credit score is based on several different factors including: how timely you pay your bills, how much you’ve borrowed, how long you’ve had credit, the types of credit accounts you have, and whether you’ve recently applied for credit. Mistakes in any of those areas can bring down your credit score, but the worst offenses and most damage to your credit score comes from failing to pay on time and taking on more debt than you can afford.

Past due accounts, collections, charge-offs, repossession, bankruptcy, foreclosure, tax liens, and student loan default are some of the most serious types of delinquencies. These are the things that cause you to have bad credit.

How Can You Fix Bad Credit

Bad credit doesn’t have to last forever. Through credit repair, you can slowly begin rehabilitating your credit score. You can begin credit repair by catching up on your past due bills. If you have some credit cards or loans that are just a few months behind, get caught up on those payments. Bringing those accounts back into a “Current” status will help you add necessary positive payment history to your credit report.

You should also take care of unpaid collections and charged-off accounts. A charge-off is a credit card that has gone more than 180 days past due. Paying these accounts won’t make them disappear from your credit report, but paying them off will help fix your bad credit score.

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