The Enigma of Bad Credit Explained

Do you have a bad credit score? The path to poor credit can happen almost overnight, or after a series of setbacks. Here’s what you need to know.

Do you have a low credit score?

If so, you're not alone.

Thousands of Americans, buffeted by the recent recession, are facing lower than average FICO scores.

Since most Americans have, on average, a credit history of 14 years and an average of 13 credit obligations, the chances that there are mistakes on a person's credit report are great.

In fact, since the average American has approximately $19,000 in credit to manage, it helps to know how to avoid getting lower credit scores, or how to improve the existing one.

This article discusses how bad credit happens and what steps can be taken to repair a low credit score.

How Bad Credit Scores Happen

More than 25 percent of Americans have credit scores below 600.

600 is the score commonly referred to as the dividing line between good and bad credit (although you may still qualify for a bad credit loan).

How do so many get into this predicament?

The following four common steps leading to bad credit can happen to anyone depending on the circumstances

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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