Bad Credit: How to Avoid and Overcome It

Having a good credit score can affect everything from buying a new home to purchasing certain types of insurance. Unfortunately, having a bad credit score affects the same things. The following information outlines what is generally considered good credit and how to avoid bad credit in the first place. There are also tips for fixing bad credit once problems have occurred.

What is Considered Good Credit

There are different types of models for determining a credit score. The FICO score has a range between 300 and 850. FICO, as well as other companies that come up with ways to determine scores, don't actually decide what is considered a good or bad credit score. Individual lenders and institutions make those decisions and they can vary slightly. On the FICO scale good credit is typically anything above 680. Average credit is generally in the 600 range. Poor credit is a score below 600 and bad credit is usually anything below 500.

Avoiding Bad Credit

There are lots of things you can do to avoid bad credit. Most importantly, make sure all your bills are paid on time each month. Paying late, even occasionally, can damage your credit score. Whenever possible, pay bills completely. Making minimum payments just to have more cash on hand is not the wisest choice. You should never max out credit cards or open several credit cards in a short amount of time. Don't take out loans for anything other than necessities, such as a house or a car. Items such as boats, jewelry, and big screen televisions should only be purchased when you've saved enough money. Finally, make a detailed list of all your monthly expenditures and income. Create a reasonable budget and stick to it.

Fixing Bad Credit

If your credit score is in the less-than-desirable range, there are several things you can do to bring it up. Start out by going over your credit report and correcting any inaccurate information. Next, set up a system that will help you make all your payments on time. Some banks will even send text messages reminding you when payments are due. Make a plan to reduce the amount of debt that you owe. There are basically two ways to do this. You either need to increase your income or reduce your monthly spending. Doing a little of both is usually the most painless way to do so. Picking up an extra job for even a few hours each week can help bring in added income to pay down debt. Cut out all non-essentials, such as movie night or eating out at restaurants. Try to use credit cards only for emergencies. If possible, join a credit union instead of a regular bank. If you need a loan in the future, it may be easier to get one at a credit union.