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If you're in a bit of a financial struggle lately, don't worry. Many people are. And as with anyone, it's likely that this financial struggle has probably affected your credit rating. If this is true, don't worry. People are slapped with bad credit ratings for several reasons. In many cases, it's through no fault of their own. As an example, you might get a bad credit score just because someone at the credit bureau itself mistakenly entered inaccurate data. It may also be that you have a very common name, for example, and someone sharing your name defaulted on a loan, went into bankruptcy, or had some other financial hardship situation, and that person's information got entered in your credit report. Other situations include a recent move, where a credit card bill got lost in the mail and you forgot to pay it. Although this can be expensive, it's an honest mistake. Certainly, it should not so adversely affect your credit report. If you have a bad credit rating, this does not mean that your reputation or access to financial services is damaged forever. Indeed, you can fix this situation almost immediately, but you have to do some work to do that. However, if you are consistently behind on financial payments, or have other financial struggles that are "permanent," this is not a quick fix situation and credit counseling may be the best bet for you. As evidence that bad credit is prevalent and common, the US Trustee Program of the Department of Justice has approved credit counseling agencies to help people with bad credit problems. You can go to their web site at: www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm. In the box where it says "approved agencies by state", you enter the state or district you live in and click "go." You get a list of credit counseling agencies that are available in your area. Why Does Bad Credit Exist? In many cases, of course, the reasons you have bad credit are completely under your control. Among them are compulsive shopping, overspending, living beyond your means, et cetera. However, in many cases, you cannot control the reasons bad credit have happened to you, such as when personnel at the credit bureaus incorrectly enter your personal information. If you correct errors made in these types of situations, your credit rating will be restored quite easily and quickly. Other reasons you might have bad credit is if you lose your job or are laid off. Unforeseen, this is an increasingly common situation in today's job environment. In turn, this will affect how and when you can pay your bills, so even if you've been a very responsible consumer previously, if you suddenly have substantially reduced or no income, you will have great trouble paying your bills and therefore will look irresponsible, even though the actual difficulty is through no fault of your own. A second reason this may occur for you is if you are suddenly facing foreclosure for your home. Even people with steady jobs face this situation, since many bought overpriced homes in the previously inflated market through lenders who were willing to cut corners to help them buy homes they really couldn't afford. Many of these homes also had such risky elements as adjustable-rate mortgages, where the rate starts out at a very reasonable level and which the homeowner can pay easily. Then, however, rates can suddenly spike and this can increase the mortgage payment by hundreds or even a thousand or more dollars a month. Facing these types of situations, even homeowners who have previously been responsible about making mortgage payments are suddenly faced with a mortgage they cannot pay. In this case, foreclosure is often the only way the situation can rectify itself. Yet another situation you might find yourself facing is divorce, which can also adversely affect your credit rating. In fact, many credit counselors say that this is a very common reason to suddenly have a bad credit rating when it's previously been good. In divorces, of course, assets must be divided between former spouses. In addition, there are often alimony and/or child support payments to make as well. Therefore, income that previously was entirely adequate suddenly isn't enough. Yet another reason for bad credit is failing health or suddenly facing substantial medical expenses that you cannot avoid and yet cannot afford. In these days of substandard or no medical insurance, many, many individuals find themselves facing serious to life-threatening illnesses and must either face lasting consequences or even death without treatment, or use medical treatment that they may not be able to pay for. Finally, over-stretching one's credit limits can do the most damage- it amazes us how people's wallets are overflowing with plastic. Instead of keeping one or two credit cards, they have 10! In addition to the usual cards like MasterCard, Visa, Diner's and American Express, they also have credit cards from department stores, gas stations, and other retailers. When one card is maxed out, they simply use the next one. Ways to Avoid Bad Credit: Before you make any major purchases, make sure you access each of your three credit reports (one from each of the three major bureaus). Each consumer is allowed one free credit report a year from each of the three bureaus through the government web site annualcreditreport.com. If you need to keep track of your credit report more often than once per year, it might be a good idea to sign up with one of the many credit monitoring services available. These services offer "free" credit reports along with other services, usually charging a monthly fee. If you find that there are any inaccuracies in your credit report, report them immediately to the bureau in question in writing. Be aware that you must report any inaccuracies or challenges in writing. The bureau in question must respond to your challenge and either verify the information or remove it. You should also know that unfortunately, inaccurate information might reappear again later as the system cycles through, so you may have to do this more than once. Eventually, though, the information will despair and the fully cleared from your report. Be vigilant and make sure you do this. Here are other ways to avoid bad credit (or better still, how to maintain a healthy credit standing): Take stock of your financial situation - jot down all sources of your income and how you're going to spend that income. Create a budget and stick to it. Discipline in spending works in your favor - banks are more predisposed to lending money to individuals who exhibit prudence; Just say no to frivolous expenses - impulse shopping is a 21st century disease. We shop when we're feeling low. Exercise instead! When you pay off debt, pay off the highest interest rate cards first. To do this, make the minimum payments on all of your other cards, then take the highest interest rate card and put all of your available "debt" cash toward that payment. Do this until you have paid off your highest interest rate card, then go on to the next. Make minimum payments on all of the lower interest rate cards, then take your highest interest rate card that still has a balance on it, and pay as much toward that as you can. You'll soon see that you can be debt free very quickly, as long as you practice discipline and diligence. Finally, the last way to make sure your credit rating will be restored is to pay your bills on time -- all of them. Mortgage, utility, tax payments, and other bill payments made on time show creditors that you are prudent and diligent in your spending practices, which will reflect positively on your report. So if you've found yourself with bad credit, don't worry. If you take some time to pay bills on time, pay off credit card debt as described above, and remain prudent in your spending, you'll be back to good standing in very little time.
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About the Article Author
Steven J. Talrechi has been writing about credit reporting and credit reporting practices for over 10 years. He specializes in helping people obtain a second chance checking account and second chance bank account when they have been turned down by banks.
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