How to Prevent Bad Credit

Do you know what actions will increase your credit score and which actions will decrease your credit score? Do you know what a “good” credit score is? Do you know what to do to prevent bad credit and what to do to get rid of it when you do have it? These are all important questions we must ask and answer as adults to make sure that we do have credit available when we need to get a loan for a car or a house.

Let's start with what a “good” credit score is. Currently, there are three major credit bureaus: TransUnion, EquiFax, and Experian. According to current US law, all citizens are entitled to one basic credit report per year from one of these bureaus. When you solicit one of these reports – which you can do online for free – you will get a brief description of your credit history, as well as a simple numerical value. If your value is 600 or above, you have reasonably good credit; if your value is under 600, you have some work to do as it may represent some bad credit

The first thing you will want to figure out is how to prevent more bad credit from lowering your score further. You can start by looking at the following outlets for bad credit accumulation: house loans, car loans, rent, credit cards, monthly bills, checking accounts, and debit accounts. Even though most people don't realize this, all of these different outlets can lower your score if you neglect them sufficiently.

Let's start with house loans and car loans. If you aren't making your minimum monthly payment on both of these, your score will suffer considerably. In general, however, it takes several months (as many as six) before lenders report good or bad behavior to credit bureaus. If you have been delinquent on your payments in the past, it is absolutely imperative that you contact your lenders immediately and broker some type of deal. If you simply do not have the money to pay, they will help you to work through some reasonable system to avoid getting reported for bad credit. For instance, they may be able to extend the period of your loan, decreasing your payment. Additionally, they may give you the option to put up collateral and take out another loan, decreasing your interest rate or your monthly payment amount. All of these avenues are critical, as they will allow you to prevent negative marks on your credit score.

Next, let's look at credit cards. This is perhaps the most misunderstood item on this list. If you want to stay in good standing with all of your creditors, all you have to do is make the “minimum payment” on each of your credit cards. You do not have to pay them in full. Rather than paying that obscene amount of money you charged on your card, the only thing you will be responsible for is probably $25 to $100 per month, but it is crucial that you pay that amount. If you're getting slammed by a high APR, open a new credit account that has a 0% APR trial period, transfer your balance to that card, and make the minimum payments.

Last, let's examine checking accounts, debit accounts, rent, and monthly bills. These can all be reasonably grouped into the same category, as they have somewhat negligible affect on credit. However, if you miss your rent or monthly bills, you can be reported to a credit bureau, which is why it is always important to talk to your lenders, rather than ignoring them if you can't pay. Likewise, with checking and debit accounts, just keep a positive amount in your account, and it will both prevent bad credit and give you a slight boost of good credit.