Having bad credit doesn’t make you a bad person. There is the misconception that a person with bad credit is irresponsible with their money and not making smart choices, but this isn’t necessarily the case at all. People fall into bad credit in a number of different ways. Sometimes it is due to situations beyond their control. And often, simply due to a lack of awareness about what can cause a bad credit score. Here are some of the common causes of bad credit.

What is Bad Credit?

What does bad credit mean?

Firstly, let’s take a look at exactly what it means to have bad credit. Everyone has a credit score, and there are a number of factors that affect this score, many that you may not even be aware of.

A credit score looks into your credit history to determine how much of a risk you are when it comes to taking out a loan. As you can imagine, the lower your score, the less likely a bank or another non-traditional lender is going to be to lend you any money. This is why your credit score is so important. It can even affect whether or not you can take out a credit card.

Common Causes of Bad Credit?

  1. Missing a repayment: whether you just don’t have the money that month or something cropped up. Missing a repayment on a loan can factor into your credit score. We all know, there are many reasons for missing a payment. You might have been in an accident leaving you with hefty hospital bills. Or maybe in a car accident and had to pay the excess. Sometimes things are just beyond your control.
  2. Reaching your credit limit: many people don’t know this, but maxing out your credit card each month can harm your credit score. It is referred to as your debt utilisation ratio. Naturally, the more credit you use, the less appealing you will look to future lenders.
  3. Multiple credit enquiries: this can be damaging if you make multiple enquiries in a short space of time. It implies you are under financial stress and can negatively impact your rating. There are ways around this if you are shopping around for the best price on a loan, which we take a look at below.
  4. Minimum repayments: another way to fall into bad credit is by making the minimum credit card repayments each month. This implies you don’t have the money to pay off the entire bill and makes you undesirable to lenders.
Missing repayments

How Can You Avoid It?

Now that you know the common causes of bad credit, the next thing to look at is how you can avoid it. You have already taken the first step. This is to be aware of exactly what factors into your credit score. Of course, situations arise which are beyond our control, and can have you spiralling down into the path of bad credit. Here are some ways you can avoid it:

  1. Repayments: if you can’t make a payment, don’t brush it under the table and ignore it. Ring up and speak to your lender. They may have a solution to help you out without causing damage to your credit score. If that doesn’t work, reach out to friends or family. They will hopefully be all too willing to help get you on your feet.
  2. Credit card: try and limit your spending to under 50% of your credit card limit. This will reduce your debt utilisation ratio and boost your credit score.
  3. Credit inquiries: if you are shopping around for the best loan, do it in a short space of time. This way it won’t affect your credit score. In fact, we are encouraged to shop around for the best deal. So, if done in the right time frame, it will only count as one hard inquiry against your credit score.
  4. Credit card bills: pay back more than the minimum each month to give the impression that you have a handle on your finances.
How to avoid bad credit

What next?

Take control of your debt to avoid any of these common causes of bad credit. The first place to start is to grab a copy of your credit report and go through all the listings and anything that might have hurt your rating. Be aware and take a look at how you can get back on track in the future. If anything seems incorrect to you, don’t be afraid to speak out and rectify mistakes.

If you are still struggling, consider taking on expert help to get you out and put you back in charge of your finances. Bad Credit Loans will be able to help you out of your debt and put your credit rating back on track. They are well equipped to ensure you don’t fall into any of the common causes for bad credit.

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