Unfortunately, it’s not hard to fall into the category of “bad credit.” It’s typically what happens when you can’t make even make the minimum monthly payments on your credit cards, miss payments on a personal loan or don’t pay medical bills. Your creditors report this to the three credit bureaus, which then reduce your credit scores accordingly.
How your credit score is determined
Your three-digit credit score is a mathematical representation of your credit report. It is based on a formula that was originally developed by the company now known as FICO. It is generally based 35% on your payment history, 30% on the amounts you owe, 15% on the length of your credit history, 10% on new credit and 10% on the types of credit you’ve used.
What is bad credit
Credit scores range from 300 to 850. Higher is good and lower is bad. If your credit score is between 300 and 499, you are said to have bad credit and may find it tough to get a new credit card, a personal loan and probably an auto loan.
Get your credit score
If you’ve recently been turned down for a credit card or a personal loan, you may have bad credit. The only way you can determine this for sure is to get your credit score. It’s available free at www.myfico.com, if you’re willing to sign up for a free trial of its Score Watch product. If not it will cost you $19.95 but could be a very good investment.
If you have a low score
If you learn you have a bad credit score of less than 500 you need to get to work to repair it. Your first step should be to get your credit report from the three credit bureaus. You can get all three at once – free – at www.freeannualcreditreport.com. You will need to sit down and read them very carefully to see if there are any mistakes or errors that could be negatively impacting your score. If you find some, you can write a letter to the appropriate credit bureau and ask that it be removed from your record. It will then contact the company that was responsible for the error. If that company does not respond within 30 days, the error will be removed from your record.
A debt consolidation loan
While negative reports cannot be removed from your credit record, there are some things you can do to repair your credit. First, you could take out a debt consolidation loan and pay off all your other debts. You would most likely have to pay a much higher interest rate but would have a lower monthly payment than the total of the payments you’re now making. You would need to make all your loan payments on time and, if possible, even double up on some of them. While this would not repair your credit overnight it would eventually increase your credit score.
Chapter 13 bankruptcy
Another way to handle bad credit would be via a chapter 13 bankruptcy. This is not a liquidation bankruptcy in that it would not discharge your credit card debts. It’s more of a way to get a time out from your creditors and create a plan whereby you would pay off most of them. This type of bankruptcy allows you to keep your personal and real property and have a regular source of income. It’s also known as the “wage earners” plan.
Debt settlement
Many families who have bad credit turn to us for debt settlement. Our debt counselors have helped thousands of Americans reduce their debts and become debt free in 24 to 48 months. Debt settlement will have an effect on your credit score but not as severe as if you have filed for a chapter 7 bankruptcy and it’s the only known way to actually get debts reduced. Call our toll-free number today more information about debt settlement and how it can help you.
National Debt Relief helps people nationwide resolve $10k or more in unsecured debt. Our debt coaches negotiate with creditors on your behalf so that you pay a fraction of what you owe and can become debt free in as little as 24-48 months. 
