Bad credit makes it harder and more expensive to borrow money, whether with a loan or a credit card, in addition to increasing the cost of car insurance, keeping you out of some apartments, and possibly costing you jobs that require a security clearance or financial responsibility. But it’s not so much what happens when you have bad credit that really matters. More important are what happened to cause the bad credit in the first place and whether it has been resolved.
Bad credit is the result of missed payments, at the very least, and likely negative events such as default, repossession, foreclosure or bankruptcy, too. So it’s clear you’ve been dealing with some financial difficulties if you have bad credit. And if those difficulties continue, your credit could go from bad to worse.
But bad credit scores are not created equal. What happens if you have bad credit could be completely different than what happens if your neighbor has bad credit. For example, you could have a bad credit score as a result of missing a couple due dates early in your credit career, then right the ship and go on to credit greatness. Or you could let those missed payments grow more and more past-due, go on to default, get sent to collections and maybe even be sued for the amount you owe. And if your debt is secured by property, such a house or a car, you could lose that, too.
So depending on your circumstances, some of the worst outcomes associated with a bad credit score could be either behind you or yet to come. Either way, you can minimize the negative side effects with patience and a well-thought-out plan.
Here’s what should happen if you have bad credit:
Catch up on late payments. If you have past-due bills, your credit score will continue to worsen if you don’t catch up. Similarly, paying off collections accounts is good for your credit score.
Get a secured credit card. The antidote to a bad credit score is a steady stream of positive information being added to your credit reports. A secured credit card is the most dependable, least expensive way to achieve that. Just make sure to pay your bills on time.
Avoid applying for big loans. Taking out a mortgage, auto loan, personal loan, etc., just creates an opportunity for your bad credit score to cost you. For starters, the hard inquiry into your credit history will hurt your score a bit more. And if you can find a lender that will approve you, you’ll probably get pretty unfavorable rates. So if you can wait until your credit score improves, it will likely save you thousands of dollars.
Wait to change apartments or jobs. Some landlords may have a policy against renting to someone with bad credit, so improving to the fair category could be a difference-maker, even if it’s just a few points. Employers can’t check your credit score, but they can review your credit report if it’s relevant to the position. So something like improving the status of an account or payment from past-due to on time could help you there.
You can take a closer look at your specific situation by signing up for a free WalletHub account. Your personalized credit analysis will include grades for every aspect of your credit history, along with advice on exactly how to improve. You can also track your progress with free daily credit score updates.