Everyone who has ever taken out a formal loan or used various other forms of credit likely has a credit report on file with the credit bureaus. This credit report includes information about the person's credit history that is entered into a formula developed by credit reporting bureaus and used to formulate the person's credit score. This score stands as a measure of the person's credit history.
Credit Score
All credit scores fall between 300 and 850. The higher the score, the better the person's credit history, while the lower score, the worse it is. According to the financial website Bankrate.com, a "good" score, meaning one that will qualify a person for the lowest mortgage rates on a home, is considered 720 and above. The definition of a "bad" score is relative, but the lower the score, the higher the rates of interest a person can expect to pay on a loan.
"Bad" Credit
A person develops a good credit score by taking out loans and paying them back on time. This demonstrates that, when lent money, a person will be likely to repay the lender. However, if a person does not pay these loans back on time -- meaning he pays them late, not at all or only for part of what he owes -- this will be recorded on his credit report and lead to a lower score.
"Poor" Credit
Sometimes a person will have no credit at all. This is not quite the same as having a bad credit history, as the person is more of an unknown quantity than a person who has demonstrated financial irresponsibility. This person could be considered to have poor or impoverished credit, as there is a lack of sufficient information about the person's lending history to give him a credit score.
Building Credit
People with bad and poor credit can rebuild their credit the same way -- by taking out new loans and paying them off on time. Sometimes it can be difficult for a person with this kind of credit history to qualify for loans. To start, a person may wish to take out a secured credit card -- a card that is secured by collateral. If the person uses this card responsibility, his credit rating will continue to rise until he qualifies for a traditional credit card.
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