If you have bad credit, you probably already know it because:
- When you apply for credit cards you usually get denied.
- No landlord will accept your application.
- You get turned down for jobs as soon as the boss reviews your credit score.
- Debt collectors won’t stop bothering you.
- Even the utility company won’t open an account in your name.
These are tell-tale signs that you’ve got bad credit and need to get on the “sitch” – post haste.
Keep in mind that bad credit is usually the result of a series of events – not just one bad transaction. Have you failed to pay your bills on time? Have you let some go to collections? Have you maxed out your cards or run high balances? Do you have liens or foreclosures on your record? These are just a handful of items that can tarnish your score.
Of course just because you have less than perfect credit doesn’t mean you are doomed to suffer all the consequences I listed at the beginning of the post. But the lower your score the more you’ll pay in interest, the harder it will be to land a job and the more difficult it will be to find an apartment to rent and the higher the security deposit will be.
What is a bad credit score?
Generally speaking, a score below 630 is considered bad. A score between 630 and 689 is average. From 690 to 719 you have good credit and if your score exceeds 719 you score is excellent.
What to do about bad credit
If you have a bad credit score, don’t worry. You can do plenty to turn that ship around. Understand first that your score is calculated based on five different elements:
- Payment History
- Amounts Owed
- Length of Credit History
- New Credit
- Types of Credit Used
So if your credit score is lower than you’d like it to be, I suggest you take a two-pronged approach to bumping it up. Obviously, the first step is to make sure your current financial behavior isn’t making the situation worse. Are you current on your bills? Are the amounts you owe low? Have you moderated the amount of credit you’ve applied for lately? These and other tactics are important to keep your credit score as high as possible.
The second phase is to clean up and repair as many of those negative items as possible. (Again, it makes no sense to go to this phase unless you are handling your current finances correctly. Why go through all the trouble of repairing past problems if your current behavior recreates the same mess?)
Cleaning Up Past Credit Mistakes
Past negative items can really weigh your credit score down but you might be able to clean off some of that mud. And some of the negative information might not even be accurate. In fact, 20% of all credit reports contain errors.
Go through your credit report and identify all those negative items. If you spot a mistake, get on it. Contact both the credit bureau and the reporting creditor and let them know about the error. By law, they have 30 days to verify that the negative item is accurate. If they can’t do that, they have to remove the item.
If the creditor and/or the credit bureau won’t play ball with you, you may want to hire an attorney to make them more pliable. If you go this route, beware. On the one hand, you don’t want to hire a shyster – and the credit repair industry is full of them. On the other hand, you don’t want to pay $400 an hour for an attorney who isn’t an expert in the field. The premier firm in this industry is Lexington Law. They specialize in credit repair and they seem very reputable, honest and inexpensive too. If I needed to clean up my credit report, that’s where I’d go – hands down.
Bad credit is expensive. It cost you employment and housing opportunities on top of the inability to get credit. Understand what your score means, what you can do to fix it and then get to work and don’t hire any scam artists that make big promises. You can get your credit fixed. You just have to be methodical, resourceful and patient.
Do you have bad credit? What are you going to do about it?