The Basics of Building Credit

Why do some people have bad credit?

Bad credit comes from not making payments on time. It has nothing to do with how much money you owe in loans and credit cards. You can be in a lot of debt and still have a good credit score if you are making all of your payments on time. Factors that lead to bad credit include:

– Missed payments

– Payments lower than the minimum amount required

– Outstanding debts (Those that you have not paid for a long time)

– Excessive credit inquiries (Too many people looking at your credit)

- Car repossessions (You lost your car because you couldn’t pay for it)

- Home foreclosures (You lost your house because you couldn’t pay for it)

If you get a loan or a credit card that you don’t pay for, you’re going to get a bad credit score. Sometimes you can’t avoid this, like if you get medical bills in a car accident. Other times, you have to find a way to make your payments on time if you want to keep your credit score high.

Let’s go back to school.

If we go back to the school comparison, a bad credit score is like someone not turning in any homework assignments for the whole semester. If you miss a big test or fail it because you were not prepared, your grades will go down. The same will happen with your credit score if you cannot make the payments on your loans.