About Poor Credit

Poor credit, which is generally considered a credit score that is lower than 619, can have a major effect on your personal finances. If you have a low credit score, you need to learn what you can do to improve it. If you have a good credit score, you need to protect it by being responsible with your finances.

Effects

Your credit score is an important part of your personal financial health. This is the number that lenders will look at to determine whether you are a good risk as a borrower. Poor credit will affect your ability to get loans, or leave you with high interest rates on the loans or credit cards you can get. It can also affect your ability to get a job, because some employers will look at credit scores in determining whether job applicants are responsible.

Time Frame

For most people with poor credit, it took a long time to get to that point. A few missed payments do lower your credit score, but not usually enough to make it terribly low. Your credit rating gets dangerously low if you habitually miss payments or make them more than 30 days late. The exception to this is if you face foreclosure or bankruptcy. Those two actions have an instant effect on your credit score, and they cause it to drop well below ideal levels. Bankruptcies stay on your credit report for 7 to 10 years, and other types of collections will stay on your report for seven years.

Prevention/Solution

If you suffer from poor credit, you can take steps to raise your credit score. The first thing to do is to make all of your accounts current. Start making your payments on time every month. Do not open new credit cards if you do not need them. Start working on paying down your debts. Remember, it took time to lower your credit rating, and it will take time to raise it, but it can be done.

Misconceptions

There are some common misconceptions about the best way to raise a poor credit score. Many people think that the best thing to do is to pay off all of your debts as quickly as possible. This is not the best strategy. It actually makes more of an impact if you pay down your debts so that each one is about a third of what the credit limit is, rather than paying them off completely one at a time. Another misconception is that closing old accounts will raise your credit score. This can actually have a lowering effect.

Warning

You may be tempted to hire a credit repair company to help you with your poor credit score. This is not usually a good idea. A credit repair company will not do anything you cannot do yourself. The company will negotiate with your creditors on your behalf and check your credit history for errors. You can do these on your own and save the money you would pay that company.

Potential

No matter how financially secure you may feel, you must realize that almost everyone faces the potential of dealing with poor credit at some point. If you have good credit, keep it high by continuing to pay your bills on time and not taking on too much debt. Also, protect your personal and financial information to avoid identity theft, which usually ends up having a bad effect on your credit score.