Consumer Credit Problems

Signs of consumer credit problems include a bad or low FICO (an acronym based on the Fair Isaac Corporation) score, high credit card debts, bankruptcy, foreclosure and the inability to acquire credit. Being an undesirable candidate for a loan can complicate your personal finances, since you're less likely to buy a home or car without credit. Rather than live with consumer credit problems, take steps to fix a bad history.

Causes

There is no one cause of consumer credit problems, and often, problems arise from situations beyond a consumer's control. For example, losing a job or experiencing cash flow problems can hinder a consumer's ability to pay loan payments and credit cards on time, and numerous skipped or late payments can severely damage a credit rating. Then again, some consumers do not know how to budget or live within their means, which can trigger debt and bankruptcy.

Dangers

Credit problems do not only affect the ability to get new lines of credit. Employers in the finance industry and some insurance companies run credit checks on interviewees and applicants to assess how well they manage money and debt. A bad credit score can cause consumers to miss out on job opportunities, and insurance companies may charge higher premiums to those with a low credit rating.

Considerations

Managing monthly payments better is one way to resolve consumer credit problems and demonstrate responsibility. Tossing statements aside when they arrive in the mail and forgetting to send in payments by the due date contributes to late fees, a higher interest rate and a bad credit score. However, consistently delivering payments on time improves credit scores.

Prevention/Solution

Bear in mind the role debts play in consumer credit problems. Uncontrolled spending, maxed-out credit cards and constantly applying for new credit cards can create a lifelong battle with debt, and if you are unable to reign in excess spending, bankruptcy may become the only solution. Bankruptcies remain on credit reports for between 7 and 10 years, and this blemish takes several hundred points off your rating. Learning how to control debt is key to avoiding bankruptcy. Slash credit spending, make larger payments and use cash to help bring down balances.

Expert Insight

Getting help for consumer credit problems can help you avoid bankruptcy and eliminate debt within a few years. Nonprofit credit counselors are available to educate you on proper credit use and debt management, and to help you negotiate better rates and payments with your present lenders and creditors.