Posted on: Feb. 26, 2017 in Credit, Credit Score, Debt

Many people in America have bad credit. Some estimate as many as 20% of the population has a bad credit. The recent economic recession that lasted from 2007 through 2009 sent many who previously had good credit on a downward spiral. Although the economy has been recovering, for many, the damage was already done.


It's often thought that having a low credit score is the result of bad decisions or a failure to responsibly handle one’s finances. It’s just not that simple. Because a credit score is made up of five main factors (payment history, amounts owed, length of history, credit mix, and new credit), there are many different reasons why someone’s credit score could be low. Having no credit history at all or a very limited one will result in a low score, but the reasons that people who have been using credit end up with a low score are not related.

Credit card debt is one of the biggest reasons for a low credit score. Many know that “maxing out” a credit card will lower your score, but even using more than 30% of your available credit can be enough to impact your credit. However, when one has significant debt, it’s easy to fall behind. Credit cards companies charge interest against any balance on the card, so only paying the minimum means the principal (the amount borrowed) will not go down by as much as you’re paying each month. If you continue to use the card, the balance goes faster. One lean month – a job loss, an accident, a health issue – and you may find yourself falling into the next category.

Late payments are another way that a credit score can be pushed down. Failing to pay on time hurts your score, no matter the reason. Keep in mind, also, that late payments can carry fees and increased interest rates. This leads to even larger debts and a higher likelihood of missed payments. Another lean month, another accident or costly mishap, can further the downward spiral.

This cycle is difficult to break for many. Someone with excellent credit and no financial issues can see everything turn around quickly after a serious illness or a job loss. When someone is barely able to make a minimum payment, a car breakdown or a trip to the emergency room can be catastrophic. A series of events can send a person further into a debt cycle. Many, through no fault of their own, may find themselves forced to use credit in unexpected ways and later find themselves unable to repay the loans.

There are ways to break this cycle, though for most this is not an easy thing to do. Repairing credit and getting out of debt can be a long and difficult process, but it is attainable.

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