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Loading ...If you have “bad credit” you are not alone. Literally millions of Americans have less-than-perfect credit ratings—but not all because they are deadbeats who just aren’t responsible enough to pay their bills on time. Many people with bad credit ran into tough financial situations that set them back for a while. Some have bad credit because they went through a messy divorce or a temporary period of unemployment. Others may have faced credit difficulties because of a serious illness, a new child in the family, or a small business that didn’t make it. The trouble is, bad credit ratings usually hang around long after financial problems are over.
Living with a bad credit rating can be a hassle. Often, you can’t get a major credit card, which means you have trouble reserving hotel rooms, renting cars, or even writing a check at a retail store. Utility companies may require deposits from people with no major credit cards, and landlords hesitate to rent apartments to people who don’t have good credit. Some employers will even turn down job applicants if their credit reports don’t look good.
It’s no surprise then that a whole industry has sprung up to help these people. Credit repair companies and issuers of special credit cards for people who can’t get credit are examples of some of the businesses that say they can help people hungry for a way back into the financial mainstream.
Credit repair companies often make a lot of money, but rarely say anything new. There are no surefire ways to a great credit rating, just as there are no guaranteed ways to become a millionaire.
There is really no such thing as a “bad” credit rating. The standards for who gets credit and who doesn’t vary from lender to lender. Here are some examples, though, of the types of marks on credit reports that many creditors consider negative:
Late Payments: Some creditors don’t mind lending money to people with histories of late payments, as long as they haven’t been behind frequently or in the past year or so. Other lenders will reject applicants with one or two payments only thirty days late.
The important thing to remember is that creditors may not be as concerned with how much you were late, but how late you were. In other words, a small $10 payment that was ninety days late can hurt your credit rating more than a $1,000 payment that was thirty days late.
Having said that, there are some cases where the amount does matter. A scoring system may be set up to ignore all collection accounts for less than $250, for example. In that case, a small late amount may not matter as much. But to be safe, you’ll want to avoid any late payments of any amounts.
Collection Accounts, Profit-and-Loss or Charged-Off Accounts, Judgments, Tax Liens, or Lawsuits: These marks are considered very negative by most lenders. Some creditors will automatically reject applications when they see these marks-especially if they have not been paid off, or if they occurred in the last two years.
Bankruptcy is often considered the most negative mark on a credit report, and again many creditors will reject outright those applicants who have been through bankruptcy (especially if it’s recent).
Delinquent Child-Support Debts: Though traditionally not a factor in credit evaluation, more and more lenders are unwilling to lend money to someone who’s behind on child-support payments.