We’ve all seen the commercials with the funny band playing a catchy tune and doing something goofy, all for the sake of checking your personal credit score. Bad credit is becoming a problem in the US. According to Barry Ritholtz of The Big Picture blog, 25% of Americans have bad credit. But understanding what can cause bad credit, and how to spend and invest wisely may keep you out of the bad credit score club.
The popular opinion about the use of credit has been in a constant state of change over the last few generations. Years ago, credit was seen as an option- but a last option. Today, people often use it first because of the perks, rewards, and the opportunity to buy things now and pay later.
The Road to Bad Credit
As Americans’ attitude has shifted toward credit it has resulted in some becoming more savvy investors, learning tips and tricks for using smart credit to their advantage, or others who have just gotten in over their heads. In a money.msn.com article entitled, “Many Think a Bad Credit Score is Okay”, MSN pointed out some alarming attitudes people have developed.
Data compiled by JZ Analytics cited:
–77 Million American’s believe it is acceptable to have poor credit.
-68 Million people feel homeowners should be able to default on their mortgages without facing consequences.
-28 Million Americans admit they would strategically default on their mortgage.
-36 Million Americans say:
-They know someone who has defaulted on their home loan.
–They would exaggerate their financial standing in order to get new lines of credit.
There are a number of reasons why people have bad credit. Poor spending habits or not understanding the loans and types of credit you’re using are usually the culprit; but identity theft is also on the rise and it can do major harm to your credit score.
How Having a Credit Card Can Be Good
Before everyone begins blaming credit card companies, the truth is that having credit cards can actually help your credit. Often when people want to avoid bad credit they think not having credit cards, or closing credit cards is the way to go. But MyFCIO.com explains that by
“closing an old or unused card, you are essentially wiping away some of your available credit and thereby increasing your credit utilization ratio”.
Your ‘credit utilization ratio’ is your total used credit in relation to your total available credit. And credit reviewers will give you negative scores if the number is too high.
Yea! Installment Plans
Financial writer Liz Weston shares how adding an installment plan to your portfolio can actually help because it shows creditors you’re responsible. She even states that if you don’t have an installment loan on your credit report, “consider adding a small personal loan that you can pay back over time”. Positive factors about installment loans the Bankrate.com points out:
-You know in advance how much the payment will be.
-Installment loans are easy to work into your budget.
-They also carry extremely competitive rates.
Finding People Who Can Help
The unfortunate reality is that some people can’t clear up their credit problems alone. This may be because of a divorce, poor choices, or identity theft but the ultimate realization is a few tips and tricks just won’t take care of it. The suggestion LaToya Irby makes on credit.about.com is to “get professional help”. Professionals like Cavalry Portfolio Services are credit “resolution specialists” who can help pin point solutions for your specific credit mending needs.
-They contact your creditors.
-Get balances lowered or dissolved.
-Reconfigure payments you can meet.
Bad credit may be common, but don’t think it is acceptable. If you’re on the road to bad credit, it may be time to make a U-turn.
I am shocked that 77 million people actually think its ok to have poor credit. Good sign that there is a huge lack of financial education.
It is a good sign for us as financial bloggers 🙂
W works at a car dealership and so many people come in with HORRIBLE credit. This then leads to a lot of them accepting a 22% interest rate!
wow 22% thats almost as high as store credit cards!!!! I think that would be a clue to them that they may not need that new car!
My credit abruptly went south when I landed in hospital and was unable to work for over a year, then I made minimum wage. My old debts were charged off and are sold and resold to debt scavengers who re-age the accounts.
Today I live on a poverty level income, have no money to repay the old debts and the only thing I can do to improve my credit is bankruptcy, which I have been unwilling to do.
Terry, thanks for sharing your story. Call up the hospitals and negotiate payment plans. Or even just pay what you can to the hospital, they may not want to hear this but it really is an interest free loan, so instead of putting that bill on a credit card where you would have to pay interest. Just shoot them 20 bucks a month or whatever you can afford.
These are great tips. Whenever someone asks me how they can fix their credit, I just really emphasize paying on time all the time. I know when they get in a tough spot they might not be able to make their payments but I find that the first missed payment is when it starts spiraling.
Yes when one gets late, then you start paying them all late. Tough to get caught up when you are behind the eight ball. We got into that situation last year, thankfully we were able to get back on the right side!
28 million strategic defaults is an absolutely insane statistic. What a systemic failure.
It is insane, everyone has their own problems with debt but seeing that number it is staggering