Checking your credit report will either reveal a pattern of good credit or a patten of poor credit. Credit scores 650 or higher are acceptable by most lender standards. Regrettably a score lower than 650 places you in the sub-prime category, wherein it becomes difficult to acquire financing.
Causes
There is no one cause of bad credit, and people who have a low credit score can likely point to various contributing factors. Oftentimes, bad credit results from lack of knowledge. Some people don't know how to use credit wisely. They acquire a credit card or other line of credit, but fall short when it comes to paying these accounts on time or keeping their debts manageable. Habitual late payments and exceeding the limit on credit cards will lower credit scores, and once a debtor loses those points, it takes time to rebuild and repair the damage.
Rejections
A major consequence of bad credit is the inability to get financing for a vehicle or mortgage loan. Creditors and lenders place a lot of emphasis on credit scores. Because they don't know applicants personally, credit scores and credit reports are the only information they have to determine if a person is worthy of credit. A low score or pattern of bad credit behavior often results in a loan or credit denial.
Interest Rate
Even if a person is fortunate to find a lender or creditor to accept his credit application with bad credit, the interest rate or finance fees on the line of credit will be expensive. And because interest rates affect monthly payments, a high rate can affect a person's ability to afford a certain type of car or home. A high interest rate is the price a person pays for having a poor credit rating.
Improving Bad Credit
On a more positive note, bad credit isn't permanent, and many people have successfully recovered from a poor credit rating. The key is changing the way you manage credit and educating yourself about smart credit habits. For starters, pay bills on time every month to help increase your credit score. Next, pay down debt and keep balances below 30 percent of the credit limit to slowly improve a low score. Use other techniques, such as checking credit reports for outdated/wrong information and limiting credit applications, to also help fix a bad credit score.
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