An Idiots Guide Bad Credit And How To Solve It

Let’s begin by talking about “credit history”, what is it and what does it mean?

The term credit history is all about how the lenders see how you’ve dealt with your credit and your debt in the past, the data is presented in a credit report. Have you been a good boy/girl or bad?

It examines how you have financed purchases in the past and well you did in meeting those loan repayment responsibilities along with your consumer behaviour. For example, did you make all your payments on time or were you late with some? If you were ever late, by how long? And how frequently? Are there debts you have already paid off in full? Lenders regard this kind of data as one of the best and most secure ways to evaluate how ‘safe’ you are in loan money too. Can we really blame them? I mean we’d all feel much happier allowing a police officer with a perfect record of service baby sit our home while we went on vacation rather than giving that same responsibility to a convicted felon right? Past history says much about you and in the eyes of the lenders… it predicts your future.

In recent times having a bad credit history has become somewhat of an epidemic and yes, it is largely the banks on fault! Firstly, it became very easy to get credit even if your finances were in a bad state and I’m sure we can all relate to receiving tons of junk mail with solicitations from credit card companies. We can also use college students as an example and see how easily get credit cards are being made available to that sector without any real work history behind them. We even have entire sectors of the market such as auto dealers advertising that they will sell cars to people with no credit history or a bad credit history – in fact, this is an entire sub-niche of the market with businesses specializing in it.

The sheer availability of easy credit to people who cannot in reality afford it is why so many of us have ended up with bad credit scores today. When you stand back and look at it, it was an obvious final destination but lenders sometimes have such greed to gobble up profit that they don’t care about future disasters, only what they can earn today. It’s short sighted and irresponsible.

The second reason is rather more interesting since it has created a significant shift is popular culture. By the financial institutions adopting such as relaxed attitude to lending the public has come to dumb down the importance of paying back loans in general. A growing percentage of us hold the comfortable belief that paying bills or repaying loans on time is not an important priority. Much of this is reinforced by advertising with some bad credit mortgage companies having slogans like “Having bad credit only means your human”. When you have a bad credit history and lenders are communicating to you that it doesn’t really matter and it’s kind of normal, so here’s some more money anyway (just at an extortionate interest rate) it only serves to validate our beliefs even further – paying on time it not really that important.

While this may work out OK for you if you are applying for a car loan or a new credit card, if you trying to buy a house with a bad credit history in your pocket then you’re in for a rough time. Fact, having a good credit history is a major factor in qualifying for a mortgage and for the majority of lenders, it is the most important factor – more so than even your income-to-debt ratio. Taking some specific examples we can look at retirees, very often they are able to secure loans above and beyond what their income level would seem to be able to support. The answer why is because of their excellent credit score and this makes the lender trust that their credit history proves they will scrimp and scrap within their budget to make the repayments… just as they always have in the past.

Why do so many people have bad credit histories? The number one culprit for people having bad credit histories is down to the misuse of credit cards. Really there are two schools of users for credit cards.

People who use if for convenience, these people don’t want to carry a lot cash and find checks to be too old fashioned and cumbersome. They pay for things with credit card solely for it’s convenience. More importantly however, they also religiously pay their credit card bill each month clearing the balance back to 0. If you belong to this group of credit card users then having a credit card makes absolute sense and it becomes a very useful tool. For example, just look at all the things like flights, vacations, hotels and online shopping you can do. However, do you know what the credit card industry calls you? A “dead-beat”. This is because you use the credit card they issued you with for your own advantage and this was certainly not what they wanted when they gave it to you! Even though you are charged a fee under some circumstances for making certain kinds of purchases, credit card companies really make their big profits on the interest paid by card holders.
The second group of credit card users are those of us who pay less than the total monthly bill which therefore incurs interest payments. The fact is that you are borrowing money every time you use your credit card. It’s ironic however than when you pay your credit card balance in full each month you are not actually building any credit history at all! It’s the ones who pay off interest in credit cards that establish a credit history for good or bad. This credit
history is what you can later use to borrow greater sums of money such as a home mortgage. The ability to properly manage your credit cards and your payments is one of the most important things to work on and perfect as a financially responsible adult.

So now ask yourself “What kind of credit card user am I”? What questions do you ask yourself when you pay for a meal with a credit card or go shopping for clothes? Are you willing to to borrow money and increase your level of debt to have it? If you’re like most people, you won’t ask yourself these questions in reality, borrowing money is exactly what your doing each time you use your credit card. That’s why they should be called debt cards, not credit cards! Debt cards are a far more accurate description of them but how well do you think that marketing campaign would do for lenders? Not very well at all.

It is possible to repair bad credit and we’ll be looking at how to do just that very soon discussing things such as

Bad credit repair services
Credit repair organizations
Credit reporting companies
and consumer protection