What is Considered Bad Credit

Having a good credit reputation is increasingly more important as it impinges on so many areas of ones life. No longer restricted to determining ones ability to obtain credit, loans and mortgages, having bad credit can crucially result in the loss of potential employment. Those seeking insurance will pay more if they have bad credit, apartment rentals become difficult, whilst credit will become difficult to obtain unless one resorts to sub prime lenders.

Credit scores are simply a measure of an individual’s risk. They are assessed not on personal income or savings but rather on how one has handled past finances. Those who have bad credit typically have an established record of paying their bills late or missing payments, and over extending themselves with their use of credit.

Tardy payments are reported onto the individual’s credit reports which are then seen by other lenders. The information on ones credit reports is then used to determine ones credit score. Whilst ones credit score is used as a key factor in financial decisions it is not made available to employers and landlords who only have access to credit reports.

Credit scores have become big business and are primarily controlled by the Fair Isaacs Corporation which devised the FICO scoring system. Their score range is 300 – 850 with anything above 760 considered excellent and below 620 not good. Basically a FICO score below 620 is considered as bad and an individual will need to improve their score to move out of the sub prime lending market.

To confuse the issue the three main credit reporting bureaus, Experian, Equifax and TransUnion, which provide credit reports to Fair Isaacs, have joined together to produce the Vantage score. This was done in an effort to break FICO’s increasing monopoly on credit scores. The Vantage score is measured from 501 – 999 and is gaining ground with some lenders.

Anyone with a bankruptcy, repossession or judgements on their credit record will be considered a bad credit risk, as will those who have recorded defaults and foreclosures. Bad credit can also be determined by those who use too much of their available credit and thus appear risky as over extended. In some instances incorrect information recorded with the credit bureaus can misleadingly show bad credit,

Those with bad credit will be penalised with high interest rates and fees when credit is required. Many typically resort to no credit check advanced pay day loans when they need to borrow. A huge sector of those with bad credit still remains desperate to obtain credit at any cost. They willingly take credit from lenders who levy fees of the allowed twenty five percent of the credit limit, and even those who have flaunted the new credit regulations introduced in 2010.

Bad credit can be improved but there is no quick fix. The recommended route is to use secured credit wisely rather than fall into the trap of relying on sub prime lenders as a method of obtaining credit. Establishing good patterns of paying on time and using less than thirty percent of available credit will help to improve ones bad credit status.