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Don't let the consequences of bad credit become permanent

A bad credit score has consequences. Lenders may turn you away when you need a loan for a house, car, school or to pay off credit card debt. Employers may assume that a bad score reflects your ability to do the job and reject your application. It may raise financial concerns about the future for a romantic partner.

The consequences are real - there is no doubt about that - but they don't have to be permanent. You can fix your credit score and make your financial life better.

You cannot solve any problem unless or until you understand it, which is why we will spend time answering a few important questions about credit scores.

  • What is your credit score? A credit score is a three-digit number that is determined based on your credit report. It helps lenders make judgments about your creditworthiness or ability to take on and repay debt.
  • How many credit scores do you have? You do not have one credit score, but multiple depending on which algorithm or mathematical model is used. There are many, but lenders and other parties widely prefer to use your FICO scores, of which you have three as provided by major credit bureaus such as Equifax.
  • What determines the FICO score? Your score can go up or down in number based on the totality of your credit report. Your credit report includes factors such as delinquencies on your payment history, the amount of outstanding debt you have, your available credit, the length of time you had accounts open, if you made inquiries for new credit and the type of credit you have.
  • Do all factors have equal weight? No single factor determines your credit score, but some are given more weight than others. The FICO model gives the most weight to your payment history and less to factors such as new credit or the types of accounts you have.

The last question we will ask and answer is, "How can you fix a bad score?" There are many things that you can do to turn a bad score around.

You can send a written letter to a credit reporting company requesting to remove inaccurate information. You can pay bills in full and on time. You can make sure you don't max out your credit cards. You can pay off your debt and avoid applying for new credit unless necessary.

You can do all of the things mentioned above, but they can be quite burdensome and near impossible if you are already struggling with debt. Bankruptcy is an answer. Many people fear filing because a bankruptcy is reported to your credit history for a period of time.

The truth is that bankruptcy makes it possible for you to rebuild your credit score faster than if you tried to go it alone. Through bankruptcy, you can get rid of most if not all of your debt. Such things as paying bills on time become much easier when you have a clean slate.

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