What is Bad Credit

No one can afford to have bad credit these days as it impacts on too many areas of life. Bad credit comes down to having a low Fico credit score, as this is the generally accepted measure of lenders determining if you are a poor risk. However the score which was established to determine if you were likely to default on your credit cards or loans is now taken into account in other areas of your life. Potential employers have the legal right to check your credit report and may turn down an applicant who is deemed suitable for a position on the strength of their credit report.

Your Fico credit score is an accurate reflection of your credit history: thus if you have not previously used credit you will have no credit score. This is not as detrimental as having actual bad credit but it leaves you an unknown factor and thus is not as advantageous for you as having good credit.

The Fico score ranges from 300-850, with the average consumer scoring in at 725. Those deemed to have an excellent score will vary by each lender but the high 700’s is usually considered good. Anything under 620 indicates that you are a bad credit risk and thus unlikely to obtain prime credit or secure a preferential interest rate or the job you desire.

The Fico scoring algorithm is no longer an unknown quality as Fico have published the details of how they compile your credit score. Thus it is possible to work yourself to improve your credit score if you do have bad credit. You won’t be able to improve your credit score overnight as it will take time, but by judicious handling of future credit you can improve it. Whilst detrimental information cannot be expunged from your credit record it will have less impact if you start to show a responsible usage of credit.

There are certain companies which advertise they can repair your credit score for you for a fee. These should be avoided at all costs as they can do nothing you cannot do yourself and they certainly cannot fix bad credit.

Any errors which are reported on your credit file are easy enough for you to correct yourself and Fair Isaacs have provided through myfico a free service for disputing errors. You simply go online after obtaining your free credit reports which you are entitled to once a year, and myfico have established a system where you can raise errors directly with the bureau which has recorded them. Only genuine errors can be corrected and if you have paid your bills late in the past or had a bankruptcy then this information will remain on your credit report for 7 and 10 years respectively.

Having bad credit does not mean you cannot obtain credit but it will be available only through secured lending or from sub prime lenders, so basically it will cost you more. However your concern regarding having bad credit should not stop at knowing you can obtain sub prime lending as it may also cost you a job application. Even worse it may well cost you an existing job if an employer decides to introduce credit checking existing staff.