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Is Bad Credit Affecting Your Life?

Having a good credit rating has become an extremely important goal in our lives. What a good credit score will do is give us lots of everyday things we usually take for granted without paying much attention to them. Why is it so important?  Well, when it comes time to buy, rent, or lease a car with financing.  Those folks in the finance departments great concern is your credit score.  The higher your credit rating, the lower your interest rate will be.  What if you have poor credit?  The financial institution may not even want to finance your loan because they "think" you are too great a "risk".  Are you?

 

So what puts a negative mark on your credit? 

	Late Payments
	Credit checks
	Background Checks - They say this doesn't affect your credit rating, but I have friends who say it does!
	Foreclosures
	Bankruptcies
	Forgiven Debt - Debt Relief
	Too Much Debt - You owe more than you earn
	Financial Institution made a mistake - This really messed me up!

There's much more, but those are the most common.  Let's look at each a little closer.

Late payments - Generally if you are over 30 days late on a payment. The more days you are late, the worse your rating will be affected.  In other words, 120 days late is much worse than being 90 days late..  Remember that every time you don't make a payment to your creditors, it will go on your credit report and will in time lower your credit to a level where it is going to be painstakingly difficult for you to get credit and raise your score.

 

Credit checks (background Checks) - The more entities that check your credit, the worse your credit rating suffers.  Who would check your credit? Depends on your situation, but here are a few.

 

• Financial Institutions - you want to get a loan or open an account.  Why?  Because the interest rate for the loan is determined by your credit score.  In order to qualify for the best account, you need to be a "good" person in the banks eyes.  Want free checking?  Not if you have bad credit! 
• Finding Employment - When they do a background check they also check your credit rating.  Why?  A person with poor credit is "not responsible" - BAM! Your application/resume goes to the bottom of the pile. 
• Rent an Apartment/Condo/House - The landlord or property management company want to make sure you are what?  "Responsible" and make sure you will pay your rent or lease payment on time. 
• Applying for credit cards - I guess that falls under Financial Institutions.

Those are the big ones and you can always research for the others.  Basically, if too many people are checking your credit, it raises a red flag and lowers your credit rating.  Unfortunately they don't care why a person maybe looking. 

 

I had a friend who was being reviewed for a position at the same time I was and he was also looking into getting a loan.  His credit rating was a little below average and after we got the jobs, he no longer qualified for the loan because his credit rating dropped to "poor".  Upon checking his credit status the last entry was from Human Resources of the company and put the loan out of reach.  Yes, he was furious!

 

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Foreclosure and Bankruptcy - When a person does this, they are literally walking away from their debt.  This is an increasing problem for lending institutions because people had borrowed way too much when interest rates were very low.  Particularly in the housing segment.  A variable rate was the loan of choice to get into a property.  But now that rates are going up, higher gas prices, and taxes... well, they are simply over extended.  It happens exponentially because as their credit cards get maxed out, the minimum payment is a fraction of the service charges are.  So even though you stop making purchases with a credit card, the balance is increasing because of the high interest rates and service charges. 

 

Forgiven debt and Debt relief - Not as bad a bankruptcy or foreclosure, but still a major mark against your credit.  Debt relief is when you or more often times, a broker negotiates with a bank to lower your debt with them.  The bank would rather get something out of you, rather than get a letter saying you have filed for bankruptcy. 

 

Too much debt - As an example... ok, here's what happened to me.  I had 7 credit cards (don't laugh!) 5 of them were maxed out and the other 2 had less than half the available credit left.  Well, I couldn't get a loan to consolidate all those credit cards at the time, because there wasn't too many debt consolidation programs at the time.  I paid what I could every month, but the amount kept getting higher and higher.  This was about 10 years ago and if it happened to me today, I would definitely speak with a debt consolidation expert.  So how did I get out of debt?  I sold everything I didn't need which left me 2/3's of the remaining debt.  I started eating peanut-butter and jelly sandwiches and Cambells Chunky soups quite frequently.  Basically I cut down on what I  didn't need.  5 Years later, I was able to pay off my debt.  Once I started clearing out some of the credit cards, I would get new credit card offers for 0% APR on balance transfers.  That's how I got into the mess in the first place, but now I was more careful.

 

$60 on a card ruined my credit - Yes, banks make mistakes!  Or was it my fault?  They won't own up to it but they do.  This is how I got a 120 day late mark and the collectors on my back.  I was in the process of moving, I had 2 cards from the same company.  One was a VISA and the other a Mastercard.  The VISA was near expiration and I didn't want to keep the card once it expired, I even called the credit card company to close my account.  I made what I though was the final payment before the expiration.  Then I moved.  My Mastercard statements followed me to my new address and the VISA statements didn't.  I didn't think anything of it because I had cancelled it!  Then I start getting phone calls from collectors saying I owed $245!  I called the collector and wanted to speak with someone at the credit card company, they told me to call the regular number.  I call the regular number and "your account has gone to the collection agency, call them!" This got me nowhere.  The collector offered to cut the payment in half.  I refused because they messed up!  Well, I ended up getting the worng end of the stick on that deal.  As I couldn't remove that mark on my credit report. 

 

So how do you repair credit?

 

• Try to add more accounts to make your available credit much higher than what you owe. Be careful though, having more credit cards can easily get you into more debt!
• Sign up for one of the credit bureaus.  Just be aware that your score on one bureau probably won't be the same on another.  You may want to sign up for all three like I did.  Once you sign up, you can then dispute any mistakes to try and have them erased.  Sometimes it works and sometimes it doesn't.  The institution has only so many days to respond, if they don't, it will be erased. 

	Experian
	Transunion
	Equifax

• I highly recommend you get this for your kids.  Since they have credit at a much earlier age, they need to pay more attention of why their credit rating is important.  Having them sign-up for one of the above bureaus will help them keep track and be "responsible".
• Your credit score could also be bad if you don't have enough credit history.  They do not "give you the benefit of the doubt!" What can you do if that is the case? Ask them to add one of your non tracked cards... gas card, department store card...etc.  Be aware that they don't have to do this and it's at their discretion.  Another biggee is Credit Unions!  Yes they have lower rates and are much easier to get, but they don't show up on your credit report.  Try to get a small loan from a bank and work your way up from there.  You'll pay more in interest, but you'll pay less in the long run. Have a kid who's working and wants a new car?  Co-sign at a bank rather than a credit union. 
• Get credit help

   

  • Credit Counseling - They will help you with ideas.  They will give you advice for a modest price and may even offer it for free at your local bank, assuming you have an account with them.
  • Credit Repair - This is a company who's business is to help you repair your credit.  They'll deal with the banks, credit card companies, and the bureaus to help repair your credit faster.
• Personally, I like the credit counseling service the best.  it's more cost effective and the only draw back is.. "time" it takes longer going this route because you are actually repairing the damage by proving yourself to be a "good" or should I say "responsible" person.  Just be prepared that it takes a long time.  If you're in a hurry, just make sure you use a reputable credit repair firm to help resolve the issues faster.

I hope you found this article worthwhile.  Having been in a bad credit situation myself, I know how daunting and stressful it can be.  It's funny how I never cared about my credit rating until I needed... "credit"!  Then it was too late and I had to suffer the consequences  and do it the hard, long and painful way.

 

Best of luck to you on your road to an "Excellent" credit rating.

Best Regards,

Russ