Bad credit describes a past failure to keep up with your credit agreements and the inability to get approved for new credit. It means you haven’t paid your past credit obligations on time, if you’ve paid them at all. You may have had accounts sent to a collection agency, charged high balances, filed bankruptcy or had a vehicle repossessed. Bad credit usually occurs when these things happen several times rather than just a single time.
Effects of Bad Credit
When you have bad credit, lenders are afraid of lending to you because you may fall behind on any credit card or loan you’re given. So, your applications for credit could be denied. If you do get approved, you’ll probably have to pay a higher interest rate than borrowers you have a good credit score.
Bad credit affects more than just your credit card and loan approval and interest rate. Insurance companies use a form of your credit score to give you an insurance rate. Some utility and cell phone providers charge a security deposit on applicants with bad credit. Landlords may require a high security deposit if you have bad credit, or they may turn you down for an apartment all together.
How to Know If You Have Bad Credit
Your credit score is a good indicator of whether you have bad credit. There is no universal cut off between a good credit score and a bad credit score, but you generally have bad credit if your credit score is below 620.
You can tell what’s causing you to have bad credit by checking your credit report. U.S. citizens are entitled to a free credit report each year from the three credit bureaus. So you don’t have to pay anything to check to see what’s causing your bad credit.
Steps to Fix Bad Credit
Bad credit doesn’t have to last forever. You can take steps to improve your credit score over time. First, you can focus on removing negative information from your credit report either by using a credit report dispute or a credit repair technique. Then, you can focus on adding positive information to your credit report by adding new accounts and paying them on time.