Understanding What Causes Bad Credit Scores

Do you have a bad credit score? The path to poor credit can happen almost overnight. Here’s what you need to know and how you can get back on track.

Even though the average credit score hit an all-time high in 2018, millions of Americans still struggle with bad credit.

If you also want to improve your credit score, you’re in the right place.

This article will help you understand what causes bad credit, and put you on the path to improve your credit score.

How Bad Credit Scores Happen

Typically, people with credit scores below 650 are considered to have "bad" or "poor" credit.

Millions of Americans find themselves in this situation and the path that leads to poor credit can happen to anyone.

This makes it imperative that everyone understands the factors that can negatively impact your creditworthiness.

Four Common Steps Leading to Bad Credit

Overuse of credit – This means buying too many things on credit. The higher your balance, especially relative to your credit limit, the lower your credit score will be.

Late payments – Try to never miss a payment. A single late payment (over 30 days late), can dock your credit score by as much as 110 points!

Debt management tactics – While these may be necessary and can help you get out of debt, short sales, deeds in lieu of foreclosure, settlements, and other debt reduction practices can decrease your credit score by as much as 85 to 160 points. Bankruptcy can drop your score another 130 to 245 points.

U.S. Foreclosure Rate from 2005-2017

Actions by the credit card issuer – Although sometimes out of your control, your credit scores will fall if your lender cuts your credit limit or pursues any collection activity.

Understanding Credit Management

It's important to know there are right ways and wrong ways to manage credit.

Less than 50 percent of Americans have ever been 30 days late on a payment, yet 30 percent have been 60 or more days late, and 20 percent have had an account closed by the creditor.

Proper credit management practices are already being used by at least half of all consumers who are using credit, and with some work, these good practices can be used by more.

Here are some facts about credit management and credit card use in the United States:

  • 40% of credit holders carry less than $1,000 balance on their accounts
  • 48% carry approximately $5,000 or less as a balance
  • 37% carry less than $10,000 in non-mortgage related debt
  • 15% carry more than $10,000 in debt

Survey: Do You Agree That Credit Cards Are For Emergency Use Only?

Repairing Your Credit – What You Should Know

The following are some of the actions you can take if you have bad credit:

  • Spend less money than you make
  • Pay all your credit card and other bills every month
  • Begin paying down your high credit card balances
  • Exhaust all other avenues before allowing foreclosure to happen or declaring bankruptcy


  • Repeatedly requesting your credit report can lower your score.
  • Review your credit score every year.
  • Learn how to can get a free annual credit report here, then challenge any false or incorrect information on your credit history.
  • The total amount of credit you have isn't really what counts.
  • Lenders look at your available credit when calculating your score.

For bad credit loans, many lenders will accept more creative types of collateral, because secured card deposits are typically only a few hundred dollars.

If you want to improve your credit, a debit card won't help your score, but it can help improve your spending habits.

Learn More About Consumer Finance

Learn More About Consumer Finance

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