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How Do You Get Bad Credit?

An individual's credit history is comprised of many various factors including but not limited to payment history, credit utilization and any black marks. Just as establishing good credit is a long-term process which takes many years, getting bad credit is a direct result of financial mismanagement and poor decision-making over an extended period of time. Sometimes consumers develop bad credit histories through no fault of their own but just as many consumers have a carefree attitude about financial responsibility and voluntarily create their own bad credit situations.

The most common types bad credit arise from bad judgment when it comes to credit card use. Missing credit card payments or making late payments is probably the single most common way for you to get bad credit. In addition to missing payments, going over the credit limit and subsequently running up the credit limit on additional credit cards also contributes to bad credit. If caught early then these types of black marks can be corrected fairly easily by making payments on time for more than the minimum balance.

More serious types of credit history black marks which are not as easily fixed result from having accounts go significantly past-due, such as 120 days or more, or outright defaulting on loans. When a line of credit is so far gone that penalty interest and additional fees are more than the principal balance many consumers will stop making payments altogether. A loan which is been charged off or sold to third-party collection agencies virtually guarantees that consumer will be unable to obtain credit in the future. Their best case scenario is to obtain a prepaid secured credit card to start rebuilding their credit history.

The single worst situation a consumer can have which will result in them getting bad credit is to declare bankruptcy. A personal bankruptcy is actually worse than a foreclosure on a home because it is not unheard of for individuals to lose a home due to job loss or mounting medical bills. Bankruptcies resulting from significant debt loads from multiple creditors suggests the individual was severely irresponsible in managing their finances. This is much more difficult to explain away as it requires neglect and a lack of proactive problem resolution to avoid bankruptcy at all costs. It is possible for somebody to have a foreclosure but otherwise perfect credit but a personal bankruptcy usually results from an overall poor financial picture and not just a foreclosure.

Certain aspects of credit management may have a detrimental effect on your credit score but don't necessarily constitute bad credit. Examples include above-average debt utilization or increased credit inquiries. These are more nuanced types of credit imperfections which may lower your credit score 20 to 30 points but would never really be characterized as bad credit.

As you can see from the above description of the various factors that constitute how you can get bad credit, it takes a concerted effort over a period of many years. Getting bad credit isn't something that sneaks up on you overnight. Financially responsible individuals who don't spend more than they make and have an emergency cash fund available in times of financial distress are more likely to avoid getting bad credit. Healthy credit is like having a healthy body and the better you take care of it the more positive things result over the years. Unfortunately bad credit doesn't just affect your ability to get loans. It can also affect future employment as well as where you're able to live. Needless to say try to avoid getting bad credit at all costs even if that means going without.