How to Money, Episode Three: Credit Scores

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Your credit score is just a simple, three-digit number, but it has a super powerful effect on your financial health. It determines what kind of loans and credit cards you can apply for, what sorts of interest rates you can get, and could even decide where you live or work.

For more on how these scores work—and what you can do to improve your own score—check out the video below.


What is a credit score?

Your credit score is a three-digit number that expresses your “creditworthiness”, or how likely you are to repay a loan based on your past borrowing behavior. Lenders use them to help judge whether or not to accept a person’s loan application and what kind of interest rates to charge them.

When it comes to your credit score, you don’t actually have just one. You have several. The most commonly used kind of score is the FICO score, which was created by Fair, Isaac and Company in 1989. (The company has since changed its name to FICO.) But even with your FICO score, you don’t have just one. You have three!

That’s because your credit score is based off information from your credit reports. The reports are compiled by the three major credit bureaus: TransUnion, Experian, and Equifax. The information on the reports can vary from bureau to bureau, which means that your FICO score can change depending on which credit report is being used to create it!

What do credit scores mean?

FICO scores exist on a scale from 300 to 850. The higher the score the better your credit.

The exact criteria for what makes a “good” credit score versus a “fair” or even a “bad” credit score will vary from lender to lender (check out our other resources for more information on bad credit loans). That being said, there are six basic ranges of credit scores:

  • 720-850 = Great Credit
  • 680-719 = Good Credit
  • 630-679 = Fair Credit
  • 550-629 = Subprime Credit
  • 300-549 = Poor Credit

If you have a great credit score, you are going to get approved for pretty much any loan you apply for–especially if you have a score of 750 or above. Not only that, but you’ll also receive the very lowest interest rates and the best credit cards perks and rewards.

The lower your score goes, the more likely you are to be turned down for a loan–especially if it’s an “unsecured” loan that isn’t backed by collateral, like a car or a house. You’ll also see your interest rates go up and the kinds of credit card rewards you’re being offered start to dwindle.

If you have a score below 630, that’s when you’re going to find real difficulty getting a loan from a traditional lender. In this range, you’re much more likely to fall prey to a predatory payday loan or title loan. Predatory lenders offer no credit check loans that can seem like a great solution for folks with bad credit–when in reality they can trap those borrowers in an unending cycle of debt.  

How are credit scores created?

In order to create your credit score, FICO first has to get a look at what’s in your credit reports. These reports are basically a history of how you’ve used credit (aka how you’ve borrowed money) over the past seven years.

After that period of time, information on your score usually drops off. This means that poor decisions you’ve made—ones that have lowered your score–will eventually drop off your report and stop hurting your credit. However, some information, like bankruptcies, can stay on your report for 10 years.

Your credit report contains information like how much money you’ve borrowed, how much of your total credit limit you’ve used, what kinds of credit you’ve used (like credit cards, mortgages or personal loans), whether you pay your bills on time, how long you’ve been using credit, whether you’ve recently applied for more credit, and if you’ve ever filed for bankruptcy.

FICO takes all that information and uses it to create a snapshot of your creditworthiness. There are five general categories of information, some of which are weighted more heavily than others:

  • Payment History – 35% of your total score
  • Total Amounts Owed – 30% of your total score
  • Length of Credit History – 15% of your total score
  • Credit Mix – 10% of your total score
  • New Credit Inquiries – 10% of your total score

As you can see, your payment history and your total amounts owed are the two most important factors.

How can you fix your credit score?

If you’re trying to improve your credit score, the two best things you can do are:

  1. Pay your bills on time.
  2. Pay down your existing debt.

Taking care of them will have the biggest impact on your score.

It’s a good idea to take a look at your credit reports to see what information is on there. Sometimes, the credit bureaus make mistakes that can impact your score! Luckily, the credit bureaus are all legally obligated to provide you one free copy of your credit report per year. To get a free copy of your credit report, just visit

Is there a financial topic you’d like to see us cover in a future episode of How to Money? Let us know! You can email us by clicking here or you can find us on Twitter at @OppLoans.

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Can Bad Credit Prevent You from Opening a Bank Account?

Can Bad Credit Prevent You from Opening a Bank Account
Yes. Sort of. It’s complicated…

For lots of people, opening a checking or savings account at their local bank branch is seen as just another errand to run. You go in, you sign some papers, deposit a bit of cash, and then go on your way. Next stop: the grocery store.

But for people with bad credit, opening a bank account can be a slightly more nerve-wracking experience. Less running to the store and more going to the doctor to have that weird lump checked out. In both cases, the results they’re waiting for could have a serious affect on their lives.

So can a bad credit score prevent a person from opening a bank account? Well, not exactly. It won’t prevent them from opening a bank account in the same way that it prevents them from getting a loan or a credit card. However, the type of behavior that causes bad credit—overdue bills, missed or late payments, accruing more debt than you can handle—is also the kind of behavior that will prevent you from opening an account.

Here, let us explain…  

Remember what “bad credit” actually means

It can be all too easy for us to throw around the term “bad credit” without stopping to remember its true meaning.

If you have “bad” credit, it means that you have a low FICO score—usually, a score that’s somewhere below 630. FICO scores come in a range between 300 and 850. The lower your score, the worse your credit. (A FICO score of 680-719 is generally considered to be a “good” score, and anything above that is “great.”)

Your credit score is determined by the information contained in your credit report. These are documents compiled by the three major credit bureaus: Experian, TransUnion, and Equifax.

Credit reports keep a record of how you’ve used credit over the past seven years—although some info on your report can stick around even longer. There are five factors used in calculating your score:

Your payment history, which makes up 35 percent of your score.

The total amounts owed, which makes up 30 percent of your score.

The length of your credit history, which makes up 15 percent of your score.

Your credit mix, which makes up 10 percent of your score.

New credit inquiries, which makes up the last 10 percent.

The more poor credit decisions you make—the more bills you pay late or credit card balances you run up—the lower your credit score goes. When lenders see a low credit score, they see someone who has a history of using credit poorly, which makes them a much riskier customer to lend money and would probably offer them a bad credit loan.

How bad credit can lead to no bank account

The same is true for banks when you’re opening a checking account. If they see you as too big a risk, they aren’t going to let you open an account. As attorney Carmen Dellutri, founder of Dellutri Law Group (@DellutriLaw), puts it, “Banks don’t like to take risks, period.”

The only difference is that the bank won’t check your credit score or pull a copy of your credit report from one of the three major bureaus. Instead, they will run a bank-specific version of a credit check, using a slightly different system to evaluate your creditworthiness. Rather than look at your history of borrowing money, the bank looks at your history of, you guessed it, using bank accounts.

They will most often run the check through a company called ChexSystems. “If you have made mistakes with banks in the past, you might have been put on the ChexSystems list,” says Dellutri. “Those mistakes could include a closed bank account without paying fees, bad credit, or other banking mistakes.” Additionally, an overdrawn bank account that is never paid up will end up being sent to a collections agency—which will show up on both your normal credit report and your ChexSystems report.

If you have bad credit, there’s a good chance that you’ve overdrawn your checking account or bounced a check or two in the past. The bank running the check will see this in your report from ChexSystems and may deny you an account. So while bad credit won’t directly lead to your being denied for a checking or savings account, the kind of behavior that leads to bad credit certainly will.

What to do if you’re denied a bank account.

It can be hard for many people to imagine not having a bank account, but it’s a hard reality for millions of Americans. A 2015 survey from the Federal Deposit Insurance Corporation (FDIC) estimated that as many as nine million households in the US were entirely “unbanked.” Going without a bank account means relying on check cashing stores, which can charge pretty exorbitant fees—all so that a person can simply access the hard-earned money in their paycheck.

That report also lists an additional 24.5 million Americans as “underbanked.” Finance expert David Bakke (@yourfinances101) defines the underbanked as “people who have a bank account but rely on other methods of financing and payments, such as using money orders or payday loans.” Even if these people currently have a bank account, they likely have bad or “thin credit”—and are at a greater risk for losing the bank accounts they already have.

If you are denied a bank account, the first thing to do is to request a copy of your ChexSystems report. Here’s the good news: you can get a copy for free. Under federal law, you are entitled to request one free copy of your ChexSystems report every year. (The same holds true for your traditional credit reports.) All you need to do is visit their website.  If there are any errors on your report, you should dispute them with ChexSystems. Likewise, if you have any outstanding overdue accounts or collections notices, get them resolved pronto.

Fixing your ChexSystems report is just like fixing your credit score. The best thing you can do is start making responsible financial decisions today. “Pay your bills on time and in full,” says Bakke. “Make sure you never bounce a check again by keeping a little more in your bank account than your register reflects.”

Even with black marks on your report, Dellutri says there’s a type of bank account that you might still qualify for:

“Many banks and credit unions offer ‘second chance’ banking accounts. These accounts might come with fewer services and higher fees, but they do allow you to open a bank account – and often you can become eligible for a regular account after six months of paying banking fees regularly and establishing a solid reputation with a bank.”

While bad credit might mean getting turned down for a bank account, it’s not the end of the world. By correcting errors on your ChexSystems report, making better financial decisions, and looking for a second chance account, you can work your way back to a standard bank account.

Have you been turned down for a checking or savings account? We’d like to hear from you! You can email us by clicking here, or you can find us on Twitter at @OppLoans.

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David Bakke (@YourFinances101) is a finance expert who started his own personal finance blog, YourFinances101, in June of 2009 and published his first book on ways to save more and spend less called ““Don’t Be A Mule…” Since then he has been a regular contributor at Money Crashers.
Carmen Dellutri is the Founder and President of the Dellutri Law Group, P.A. (@DellutriLaw). He is certified by the American Board of Certification Consumer in bankruptcy law. He is also a Florida Supreme Court Certified Circuit Court and Family Law Mediator and a Qualified Arbitrator.

How Bad Credit Can Affect Your Kids’ Future

How Bad Credit Can Affect Your Kids' Future

Bad credit can feel like an anchor, bringing you down while you’re attempting to swim through the ocean of life. Even if you’re careful, there are things you might not even realize can harm your credit.

And as unfair as that is, things get even less fair, because your credit won’t just affect you. It can also affect your kids. But instead of taking this as a negative, try and take this expert advice as a warning and a motivation to rise to the challenge of improving your credit and building a better future for you and your children.

In your best interest

You probably know that a lower credit score means higher interest rates. And that can affect your children.

“Sadly, your credit doesn’t just affect you, it also affects your kids,” Michael Banks, founder of (@FortunateInvest), warned us. “One of the biggest ways it can affect your kids is via interest rates. With a lower credit score, every loan you take out ends up having a higher interest rate. It may not seem like a 4.65% interest rate on your mortgage is that much worse than a 4% one, but over the life of your children, that can add up to thousands of dollars- dollars that could be used to pay for college, cars, and other expenses you may encounter as your children grow up.”

Schoooool’s out for credit

You’ll notice one of the concerns Banks mentioned was college costs. Education was a recurring concern among the experts we talked to. And it makes sense: your kids’ education can have a big impact on the rest of their life. And sadly, if bad credit is going to influence it, it’s not going to influence it in a positive direction.

Accredited financial counselor and founder of Youth Smart Financial Education Services Roslyn Lash (@RosLash), painted us a picture of how things can go wrong: “If the child needs an expensive graphing calculator and you don’t have the cash, your bad credit could prevent you from buying it, contributing to your child’s classroom struggles. In addition, higher grade classes offer expensive field trips, often out of the country. Without good credit, your child may not be able to attend. If s/he does attend, it will be at a higher cost due to the higher interest rate. And lastly, when it’s time for college, your teen may need a co-signer (with good credit) for a student loan. Again, you won’t be able to help them. Bad credit hinders you from helping them get a better grip on life.”

Generalized credit anxieties

If you have bad credit, you probably find yourself worrying about it somewhat frequently. Sadly, children can catch some of that worry.

Marc Johnston-Roche, cofounder of Annuities HQ (@AnnuitiesHQ), echoed the concerns about education, in addition to bringing up financial anxiety: “Growing up in an environment of constant financial worry can cause your children to ‘inherit’ those same concerns and carry them into their adulthood.

“Bad credit could also impact their ability to receive student loans for college, and limit your ability to help them as a co-signer for their first car or home.”

Justin Lavelle (@Justin_Lavelle_), Chief Communications Officer for (@BeenVerified), covered some of the ways bad credit can generally affect children’s upbringing:

“Bad credit will limit options that you have to provide your kids opportunities. A lot of things your kids want and need cost money and unless you are flush with cash you may from time to time require credit to get through the lean times. Back to school shopping, camps, and extracurricular activities all cost money and good financial management and the availability of credit can help you provide these things for your children.

“Kids learn a lot from their parents and financial management is one of them. If you are constantly struggling with your finances or are denied credit for large purchases these events can rub off on your kids and they may be less likely to handle money of finances when they are of age to need to. Set a good example and mind your finances if for no other reason than to set a good example for your kids.

“Your children will need you at some point for financial help. They may need student loans or need you to co-sign a loan for their first car. These things are going to be dependent on your ability to obtain credit and this requires a strong credit history. Don’t waste away your financial future and your child’s hopes and dreams because you have sloppy money habits. Make sure that you don’t have more credit than you can handle. Pay your bills on time and act responsibly with money.”

Are you (in)sure?

Bad credit can even affect you and your kids in ways you might not have realized. Like your insurance coverage!

In some states, your credit based insurance score can be used to rate your insurance,” Scott W. Johnson, manager and founder of Marindependent Insurance Services LLC (@marindependent1), told us. “If your parents have a bad score and end up having to pay more for auto or home insurance, it could result in the parents opting for less insurance. This could obviously wreak havoc on a young adult that is still getting their auto insurance from their parents. Lucky for me, my home and auto clients are based in California where this practice is not allowed. There are a few more states where this practice is illegal.”

But don’t give up hope!

We know this can all sound like a huge bummer and you might think a bad credit loan is your only option when you need money. But as we said earlier, take it as an incentive to grow your credit. Get a secured credit card and pay it off in full every month. Catch up on all of your bills, asking friends or family if you need help. Before you know it, you’ll have a shiny new credit score and your children will have a shiny new future!  

Have you talked to your kids about the effect that bad credit can have on their futures? We’d love to hear about it! You can shoot us an email by clicking here or you can find us on Twitter at @OppLoans.

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Michael Banks is a seasoned finance professional and founder of (@FortunateInvest). With 20 years of professional experience in the financial services industry, he uses his expertise to turn simple lessons on money into lifelong habits that form the basis for a successful financial future.
Marc Johnston-Roche, working steadily in the financial services, online marketing and lead generation industry for over eight years, Marc has had literally thousands of conversations concerning annuities with prospective buyers and advisors. Always looking forward to the time when he could develop a company network of retirement professionals based on three equally important but simple principles: respect, integrity, and professionalism. With his understanding of online marketing operations – he branched out with his partner and formed Annuities HQ (@AnnuitiesHQ).
Roslyn Lash (@RosLash) is an Accredited Financial Counselor. She specializes in financial education, adult coaching, and works virtually with adults helping them to navigate through their personal finances i.e. budgeting, debt, and credit repair. She is also the founder of Youth Smart Financial Education Services. Her advice has been featured in national publications such as USA Today, TIME, Huffington Post, NASDAQ, Los Angeles Times, and a host of other media outlets.
Justin Lavelle (@Justin_Lavelle_) is a Scams Prevention Expert and the Chief Communications Officer of (@BeenVerified). BeenVerified is a leading source of online background checks and contact information. It helps people discover, understand and use public data in their everyday lives and can provide peace of mind by offering a fast, easy and affordable way to do background checks on potential dates. BeenVerified allows individuals to find more information about people, phone numbers, email addresses and property records.
Scott W. Johnson is the owner of Marindependent Insurance Services LLC (@marindependent1), a hard to place and affluent home Insurance Agency based in Marin County California.  Scott enjoys reading, investing, and the outdoors.  He can often be seen on the trails in Northern California on his mountain bike or skis.

Know Money, Win Money! Episode One: Credit

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We here at the OppLoans Financial Sense Blog want to make sure you have more money in your pockets by any means necessary. Normally that means giving you advice about saving money, but starting today, it also means running around on the street and asking you (or people like you) questions about money, and then giving you money if you get them right.

It’s called Know Money, Win Money, and it’s our hot new game show. The first episode is all about credit, and you can check it out right here:

The first question we asked was pretty simple: What’s the definition of a credit score?

Even though most people have some sense of why their credit score is important, they may not totally realize what it is. Simply put, it’s a measure of your “credit-worthiness,” or how good you are at taking on debt and paying it back. Your credit score determines what kind of interest rate you’ll get on your loans, or if you can qualify for a loan at all.

Our next question asked was what would be considered a “good credit score.”  If you’re wondering, it’s 680 to 719. Anything more than that and you’re golden but anything less than that… well, your interest rates aren’t going to be so hot. Or they’ll be too hot. The point is you’ll have high interest rates.

Finally, Most people are aware of the FICO company that creates the most common type of credit score. But we wondered if people knew what the company’s name actually stands for? For the most part, they did not. And we can’t blame them. Few people do! If you’re wondering, it stands for Fair, Isaac, and Company.

So we got to give away money, and teach people about credit. Hopefully next time we’ll run into you!

What financial topics would you like us to cover in future episodes of Know Money, Win Money? Let us know! You can email us by clicking here or you can find us on Twitter at @OppLoans.


Did Your Bad Credit Score Just Go Up? Here’s Why.


New rules from the three major credit bureaus mean rising scores for millions of US consumers.

If you’ve got bad credit, then you know perfectly well how powerful a credit score can be.

Credit scores determines what kinds of loans, credit cards, and interest rates you qualify for, and they can affect where you live and work, as some landlords and employers check your credit before offering you a job or apartment.

Having bad credit means that you are shut out from financial opportunity, from affordable loans and interest rates, from credit card rewards and from owning your own home. It feels like no matter what you do, your score is never going to get any better.

Well, guess what? There’s a good chance that your credit score is going up.

Recent changes announced by the three major credit bureaus—Experian, TransUnion, and Equifax—will lead to millions of debts and liens dropping off people’s credit reports–causing their scores to rise.

According to Howard Dvorkin (@HowardDvorkin), CPA and Chairman of (@debtcom), “These changes are some of the best financial news for average Americans in quite some time.”

“Everyone likes talking about the unemployment rate and the stock market, but the sad truth is: If you don’t have a job, the unemployment rate is 100 percent. And you definitely aren’t playing the markets.”

“This is the best news that most folks don’t really understand,” says Dvorkin. “The Big Three credit bureaus—Equifax, Experian, and TransUnion—have a big say over your life. They create credit reports on you that affect your mortgages, auto loan, and maybe even your rent.”

Got that? Okay. Here’s what you need to know.

What’s changing?

One of the major changes that’s occurring is to how the credit bureaus enforce their rules regarding public records—a major source of financial information.

According to nationally recognized credit expert Jeanne Kelly, (@creditscoop), “The credit bureaus have to verify four points of consumer data in order to use a tax lien or judgment as part of a consumer’s credit score. If 3 of the 4 points don’t match up, they cannot use the negative item as part of your credit scoring.”

“They are now required to correctly have: 1. Name; 2. Address; 3. Social Security Number; 4. Birthdate. If they can not verify it will be removed from your report and you will see a score increase.”

Kelly adds, “If the item was entered years ago you won’t get as much of an increase as if it was recent… If it is still due, you want to still resolve.”

“Starting this month, if you have civil judgments or tax liens, they’ll be removed from your credit report,” says Dvorkin. “Moving forward, those two things will need to be updated every 90 days, which means if you settle those, they’ll get updated much faster.”

And those aren’t the only changes.

“Starting in mid-September, the credit bureaus will wait 180 days before including medical debt on their reports,” says Dvorkin. “This is a big deal because, in six months, you might be able to pay off or negotiate payment for expensive medical procedures, as well as dispute those charges with your insurance company.”

“Even better,” he adds, “those credit bureaus will delete medical debt from your reports when your insurer pays it off. So it’ll be like it never existed. The government says 15 million Americans have only one black mark on their credit report, and it’s medical debt. This will definitely help them.”

“The credit bureau changes are fantastic news for all consumers,” says attorney, author, and  advocate, Alexis Moore (@AlexisMooreLaw). “It’s one less piece of data that the credit bureaus can store and furnish which is great news, since the majority of Americans today experience inaccurate data on their credit report and never get it completely resolved even with litigation.”

“I know,” says Moore, “I was one of the persons victimized by inaccurate data. And even with litigation, there are still errors that remain and continue to be at issue for which I have to litigate again and again.”

Why are these changes happening?

These changes have been a long time coming. Consumer and government advocates have been pushing for years for the credit bureaus to be more accurate with the data they included on people’s reports.

Simply put: too many people were ending up with inaccurate information on their reports, needlessly damaging their credit.

“Inaccurate data being furnished became too common in this area, so the public officials finally got busy and said no more,” says Moore, adding that this is “exactly what needs to happen in other areas of the data that they store – way too many pieces of information are inaccurately stored and furnished by these agencies, jeopardizing consumers financially—which in turn wreaks havoc on their lives in all ways from employment, housing, insurance, credit lines you name it.”

“The credit bureaus control it and we need them to store and furnish less data.”

How will your score be affected?

It depends. Your score might not be affected at all if you don’t have any tax liens, civil judgements, or medical debt on your report.

But if you do…

According to Dvorkin, “All this can mean you might gain 10 to 20 points on your credit score.”

“That may not sound like a lot when those scores go up to 850,” he says, pointing out that, “in fact, it won’t make the difference between getting a low mortgage interest rate or a steep one.”

“But any move upward is the right direction,” he adds, “and depending on how it all shakes out, millions of Americans might benefit.”

Moore says that some of the clients she works with have seen even larger bumps:

“My clients have experienced 24-35 points since this change, getting better car loans and mortgages because of it—a win-win for consumers!

And consumers aren’t the only ones who will be seeing benefits. A rise in credit scores means a rise in qualified applicants for lenders nationwide.

“The lenders are loving it,” says Moore. “They can offer mortgages to clients that they perhaps couldn’t—so another way for them to cash in, especially in northern California where my office is located. There is a housing shortage here and lenders are more than happy to lend more money and be able to help more consumers than they otherwise would not have been.”

What that means for you is simple: be careful. There are lots of sketchy lenders out there who would be happy to sign you up for a mortgage, car, or personal loan that you actually can’t afford!

After all, your credit score just went up. The last thing you need is for a bad credit loan from a predatory lender to send it back down again. Learn how to protect yourself from predatory lenders in our ebook How to Protect Yourself from Payday Loans and Predatory Lenders.

Is your score going to be affected by these changes? If so, we’d love to hear about it! You can shoot us an email at by clicking here or find us on Twitter at @OppLoans.

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Howard S. Dvorkin (@HowardDvorkin) is a two-time author, personal finance expert, community service champion and Chairman of As one of the most highly regarded debt and credit expert in the United States and has played an instrumental role in drafting both State and Federal Legislation. Howard’s latest book “Power Up: Taking Charge of Your Financial Destiny” provides consumers with the detailed tools that they need to live debt free and regain their financial freedom. Howard has appeared as a finance expert on CBS Nightly News, ABC World News Tonight, The Early Show, Fox News, and CNN.
Jeanne Kelly (@creditscoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out her site to get the credit help you need!
Alexis Moore (@AlexisMooreLaw) is an Attorney, Author and Advocate in El Dorado Hills, CA.  Part of her law practice is devoted to providing clients legal advocacy who have inaccurate data on their credit reports or that are experiencing debt collector abuse.  She also serves as a Risk Management Consultant worldwide for clients who are experiencing cyberabuse and stalking. Her upcoming book;  Surviving a Cyberstalker: How to Prevent and Survive Cyberabuse and Stalking is due out September 1, 2017.

12 Tips for a Bad Credit Makeover (Part 1)


Even if you think your credit score is beyond repair—there are steps you can take to better your financial future!

If you watch any teen movie, there’s always that sequence where somebody undergoes a life-changing makeover. You know that montage of trying on new outfits, getting a drastic haircut and adding (or removing) bangs, and finally a scene where our main character removes their glasses and realizes that yes, they are in fact super hot?

Well, if you have a bad credit—which means a FICO score below 630—then your creditworthiness could probably use a makeover too. That’s why we’re here! We’ve got some fantastic, detailed tips for how you can turn your bad credit from zero to hero. (Is that how teens talk these days. Is that appropriately fleeked?)

This post is only Part I of the list. It includes tips one through six. Keep an eye out for Part II dropping later this week!

1. Stay away from hard credit check loan and credit card applications.

When you apply for a new loan or credit card from a traditional lender, the lender performs a “hard check” on your credit. This means that they pull up a full copy of your credit report to assess your creditworthiness, and that inquiry or check gets noted on your credit history.

“Recent Credit Inquiries” comprise 10 percent of your overall FICO score. Searching for new credit can be a sign to lenders that you might be mismanaging the credit you already have. That’s why these checks can ding your credit score for up to two years after they appear on your report.

So unless a credit application is 100 percent necessary, you should stay away from applying for new loans and credit cards while your credit is already bad. If you’re really in a bind, you should look to get a loan from a “soft” credit-check lender. These checks won’t hurt your credit score, and soft credit check lenders are more likely to lend to folks with not-so-great credit.

2. Find a better credit utilization ratio.

Natasha Rachel Smith, personal finance expert for (@TopCashBackUSA) says, “Credit scores are largely affected by your credit utilization ratio (that is, how much of the total credit that’s available to you is in use) and payment history.

Since credit cards have become such a major part of modern personal finance, credit utilization is an incredibly important factor in determining a person’s creditworthiness. Unlike traditional loans, credit card borrowers are given a maximum amount of money—called a “credit limit”—that they can borrow up to with their card. Borrowing far below your credit limit is a good sign to lenders that you are using your credit cards responsibly.

“A good credit utilization ratio is less than 30 percent. Under ten percent is ideal,” says Smith. Once you exceed 30 percent, you may be seen as a risk to a lender and could potentially be denied a loan or credit card.”

“A great, speedy way to raise your credit score is to make sure you are spending within your comfortable means so you don’t slip over a 30 percent credit utilization ratio.”

3. Get rid of your debt with one of these methods.

If you have a bad credit score, then you probably have too much debt. Your “Amounts Borrowed” make up a 30 percent of your FICO score, which means that too much debt is going to have a much bigger effect on your score than most other factors.

So if you’re serious about fixing your bad credit, you’re going to need to pay down some of that debt. Easier said than done right? That’s why you should look at two of the most popular debt repayment methods: the Debt Snowball and the Debt Avalanche.

Both methods involve saving up a chunk of money beyond your monthly minimum payments and then focusing all that extra cash on one loan or credit card. One that debt is paid off, you then take that cash plus the monthly minimum for the now-retired debt, and putting all that money towards your next debt. With each debt that you pay off, you get more money to put towards your other debts.

The difference between Snowball and Avalanche methods come with how you decide to order your debts. With the Snowball method, you pay off your debt with the lowest balance first and then work your way to the debt with the highest balance. With the Avalanche method, you start with the debt that has the highest APR, and then work your way towards the debt with the lowest APR.

Both methods have their benefits and their drawbacks. To learn more about them, check out these OppLoans blog posts:

4. Cut back on your spending by starting a budget.

At its heart, having a bad credit score means that you have had trouble with managing your money. That’s how you’ve ended up with too much debt, or failing to make your bill payments on time. That’s why a lot of the advice we’ve doled out already is really just advice for how to better manage your finances.

So if you are trying to fix your bad credit, one of the best things that you can do is take control of your financial situation through starting a budget. Budgeting will allow you to plan for how your money gets spent; it will let you see areas where you can cut your spending back; it will help you pay your bills on time, and it will help you put money aside to start tackling your debt.

“Sit down and take a hard, deliberate look at your finances and plan your month’s expenses,” says Smith. “Budgeting will allow you to pay down debt while saving smartly.”

She recommends, “Minimize your spending habits by budgeting your costs in three categories that are the most important: bills, savings and living expenses such as rent and food. Cut your spending by not buying things you simply want; focus on the things you need.”

If you want to start a budget but aren’t sure where to begin, then Smith has a good strategy. It’s called the 50/20/30 rule:

“You should spend only up to 50 percent of your after-tax income on essentials, such as housing and food; 20 percent on financial priorities, such as debt repayments and savings; and 30 percent on lifestyle choices, such as vacations. Don’t splurge in other categories as costs can add up quickly!”

Stephanie Stewart, Digital Marketing Strategist for Best Company (@BestCompanyUSA) also has a great piece of budgeting advice:

“A great budgeting tip I have found is to take out all your grocery money for the month in cash, when the cash is gone you have to get a bit creative in the kitchen. This helps with overspending on food every month. This money could then be applied towards paying off your debts to help improve your credit score as well.”

You can also learn more about setting and meeting your budgeting goals in OppU, our online finance course.

5. Check your credit report for blemishes.

If you want to fix your credit score, then you pretty much have to get a copy of your credit report. After all, all the stuff that’s dragging down your score is stuff in that report. You can’t fix your score without knowing what factors are dragging it down in the first place!

However, there’s another reason why it’s good to request a copy of your credit report, and that’s because it might have errors on it that are unnecessarily lowering your score. Credit reports are compiled by the three major credit bureaus—Experian, TransUnion, and Equifax—a process that involves getting information from thousands of different businesses on hundreds of millions of different borrowers nationwide.

So yeah. There are going to be some mistakes.

Don’t worry though! Here’s the good news: you can access your credit report for free and dispute any errors that you find directly with the bureau. Under federal law, the three major bureaus have to provide you with one free copy of your credit report per year upon request. Just visit to request a free copy of your report.

If you find an error on your report, you can check out this online resource from the Federal Trade Commission (FTC) for a guide on how to dispute it:

FTC Facts for Consumers – How to Dispute Credit Report Errors

And even if you don’t find any errors, checking your credit report is something that you will want do regularly from now on. That way, you can stay on top of your financial reputation.

Lastly, here’s a credit-monitoring pro tip from attorney and best-selling author of The Plastic Effect, Stephen Lesavich, PHD (@SLesavich):

“Since you are entitled to one free credit report from each credit reporting bureau, consider ordering one of your credit reports from one of the credit reporting bureaus in each four-month period during a calendar year. This way, you can monitor your credit for free throughout the year.”

6. Run from predatory payday loans!

The road to fixing your bad credit can be a pretty narrow one. Walking it successfully means taking a lot of positive steps, but it also means avoiding a lot of negative ones. One wrong move and you can find yourself right back where you started.

Taking out a payday loan could definitely undo all the hard-won progress you’ve made.

These are short-term loans, often meant to be repaid with a single payment only two weeks after they are issued. As these loans are primarily aimed at people with bad credit, the interest rates are high.

How high? Try an APR of 400 percent!

Beyond those ridiculous annual interest rates, payday loans have another problem, too, and that’s their lump sum repayment structure. Instead of paying the loan off in a series of small, manageable payments, payday loans require you to pay the loan off all at once.

Add lump sum repayment up with short terms and high interest rates and it’s no wonder that so many payday loan customers have trouble paying their loans off on time. Instead, they are forced to roll the loan over, receiving another repayment period at the cost of an additional interest charge (read more in our article The High Cost of Payday Loans).

It’s all too easy for payday loan borrowers to end up getting stuck in what’s called a “Cycle of Debt.” This means that they keep extending their payday loan or they pay the loan off and then taking out a new loan immediately after to help cover their costs. They never get close to paying their debt off, they simply pay more and more interest every time the loan comes due. It’s like the loan is slowly bleeding their money dry.

And guess what? Being stuck in a payday debt cycle is not going to help your credit! Either it’s going to be sucking away money that you could put towards better things, or you could default on your debt entirely and get sent to collections! That collections agency would then likely report your unpaid account to the credit bureaus, and they might even take you to court to have your wages garnished, another action that would get recorded on your credit report.

If you have bad credit though and need a loan for emergency expenses, consider looking for a more reputable bad credit lender, like OppLoans, that will offer you lower rates, more manageable payment terms, and better customer service than your typical payday lender.

That’s it for Part I! Keep a look out for Part II dropping later this week to help make your credit makeover complete! In the meantime,  follow us on Twitter at @OppLoans.

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The Journey to Turn Your Credit Around


Improving your credit score is like building Rome. It isn’t going to happen overnight and you probably don’t want to do it alone. That’s why you have to see improving your credit as a journey, and why you should get help from friends, family, and your buddies over here at the OppLoans Financial Sense Blog.

In order to give you a sense of the steps you’ll take on your credit score voyage, we spoke to Courtney Sanders (@thinkngrowchick), an entrepreneur and speaker who overcame her own bad credit problems, and friend of the blog Jeanne Kelly (@creditscoop), one of our favorite nationally recognized credit experts.

Lace up your shoes, because your credit journey is about to begin.

Start paying off your bills on time.

This can be the simplest, and sometimes, the most difficult step. But according to Sanders, it’s an important first step: “Pay your bills on time every month, even if you have to call the credit card company and negotiate a lower minimum payment. The important thing is that you establish regular, on-time payment history.”

Your payment history is 35 percent of your credit report, making it the single largest factor in determining your credit score. That’s why it’s the first place to start fixing things up. It can take real sacrifice and dedication to get your bills in order, especially if you’re far behind. You shouldn’t hesitate to ask friends and family for help if you need it. Having a better credit score might mean you’ll be in a better position to help them out if they ever need it.

Look back at old loans.

Just because you’ve forgotten about old loans, that doesn’t mean those loans have forgotten about you. Those old loans can impact your credit score now. You should review your entire financial history early on your journey to fix your credit. According to Kelly, one of the big examples of past loans deserving of review are student loans:

“Review all your student loans after graduation. You might have old emails or old home address, as your parents possibly moved after you graduated high school. If you do not get notices once payments are due, that will drop your credit score if they are not paid on time. It’s very important to check on what loans you have outstanding and when payments are due. Often students do not realize that each semester the loan was taken out is another account on your credit report. So, if you happen to go to college for eight semesters and needed loans for each, that would show up as eight separate loans on your credit report. Miss one payment and that is eight loans in the negative section of your report showing that missed payment. You might want to look into consolidating the student loans into one loan after graduation.”

Start managing your credit card properly.

It isn’t enough to just pay your bills on time. The next step of your credit score journey is using your credit card in a smarter way. That’s why Sanders recommends you: “Manage your credit card utilization ratio. Don’t carry a balance higher than 30 percent of your available credit at any one time.”

Your credit mix might only be 10 percent of your credit score, but you want all the help you can get. Even if you’re paying all your bills, having too much racked up on your card doesn’t look good to the credit bureaus who calculate your credit score.

Don’t close other cards.

Although having too high a balance on your credit card is bad, that doesn’t mean that no balance is better. It might seem counterintuitive, but closing old credit cards can actually make your credit situation worse. Here’s how Sanders explained it:

“Keep credit lines open. I know when people are trying to get out of debt they think they should pay everything off, close all of those credit card accounts, and that will improve their credit score. While paying things down is definitely great for that credit card utilization ratio, if you close the account it could actually hurt your credit score because you want to establish credit history. So the longer that you have credit lines open and you can demonstrate that you have a good track record in paying your bills every month, the better it is for your credit score.”

The length of your credit history is 15 percent of your credit score, so again, not the biggest part, but not nothing either!

The promised land of better loan rates.

It won’t be an easy journey, but the destination makes it worth it. You can learn more in our recent blog post “How Fixing Your Credit Can Fix Your Future.” Whether it’s getting better rates on a loan, a car, or even a job you might get turned away from if your credit was worse, it’ll all pay off in the end.

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Jeanne Kelly (@creditscoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out her site to get the credit help you need!
Courtney Sanders (@thinkngrowchick) is an entrepreneur, speaker, and rising authority on women’s empowerment. Through her training and development company, Think & Grow Chick, LLC, Courtney provides online & in-person education, mentorship, and community for millennial women. After educating herself on the “ins and outs” of personal development, money management, and entrepreneurship, Courtney climbed her way out of debt in a few short years and went on to successfully launch Think & Grow Chick.

In 2015 she authored the book, Get What You Want: The Ultimate Guide to Figuring Out + Getting What You Want in Life which has since served as a catalyst for several related trainings and programs.

7 Things You Didn’t Know Could Impact Your Credit


Credit scores are sort of mysterious, aren’t they? It’s tough to be sure what gives you good credit, what gives you bad credit, and what exactly the difference is.

First of all, let’s establish what it means to have good credit: it’s any FICO credit score above 680. Bad credit is any credit score below 550. The worse your credit, the worse rates you’ll be looking at for any kind of loan, and the fewer lenders will be willing to offer you a loan at all.

You probably know that failing to pay your bill on time is a big no-no when it comes to keeping a good credit score, but there are multiple factors you might have not even considered. Here are some of those factors!

Cosigning on a loan.

You’re a responsible person and a good friend. Someone you know is having trouble qualifying for a loan and needs you to sign on with them. It’s just a signature, right?

Wrong! You’re leaving your credit future in their hands. As nationally recognized credit expert Jeanne Kelly (@creditscoop) told us:

“Many people do not understand that the loan they just cosigned is just as much their responsibility as the other person they signed for. The loan and payment history goes on both of their credit reports. If the other person pays late, it will get reported on both their reports. If the other person lets the loan go into default, the cosigner is responsible for the balance. I wish lenders stopped using the word ‘cosign,’ as for some reason people do not realize the full impact. I wish they would just call it a joint loan.”

Closing old credit cards.

You know acting irresponsibly with your credit cards will mess up your credit score. But some behavior that seems responsible may actually hurt your credit.

Per certified financial educator Maggie Germano (@MaggieGermano): “There are many things that can negatively impact your credit score, and some of them aren’t what you’d expect. For example, closing your old credit cards can hurt your credit score, because it shortens your credit history. So if you have old cards that you don’t really use anymore, keep them open. Another thing that can hurt your credit score is if something is sent to collections. Is there an old electric bill you never paid? Perhaps a medical bill that you couldn’t afford? Track those bills down! Pay them off before they go to collections and get reported on your credit report.”

A hard credit check.

Most legitimate lenders will want to perform a credit check before determining if they’ll lend to you. That’s because your credit score is seen as an indication of your likelihood to pay back the loan you take out. But not every credit check is equal! There are both soft and hard credit checks.

Trent Hamm of The Simple Dollar (@thesimpledollar) wrote an article explaining the difference. As Hamm says, hard credit checks are “ones where you’ve granted permission, they indicate that you’re actively seeking credit, they show up on your credit report for everyone to see, and they tend to have a slight negative impact on your credit score.”

“A soft credit check, on the other hand, doesn’t require your permission, doesn’t indicate anything about your interest in seeking credit, only shows up on the credit report you see, and has no impact on your credit score,” Hamm explains.

If you need a “bad credit loan” from a lender who will consider you even if you have less than ideal credit, it’s better to apply to lenders who perform a soft credit check, so that your credit score isn’t harmed further. And it’s much better to consider a lender who performs a soft credit check than no credit check at all, as that can be a red flag that they don’t expect you to be able to pay back the loan and might be trying to trap you into a cycle of debt.

Receiving a “charge-off.”

You know missing payments is bad, but you may not have realized how bad it can get. Miss too many credit card payments and the credit card company will decide you aren’t likely to ever make those payments. That’s when they hit you with a charge-off.

How does that work? According to LaToya Irby (@latoyairby) in an article she wrote for The Balance (@thebalance): “Once your account is charged-off, you will no longer be able to make purchases with the account. However, you still owe the charged-off balance.

“The creditor will report a charged-off account status to the credit bureaus. This status will remain on your credit report for seven years from the date you first went delinquent. In the future, when creditors and lenders pull your credit report, they’ll see you once were late enough to have a charge-off.”

Irby goes on to explain how this impacts your score: “Your credit score will drop after a charge-off. Payment history weighs heavily in the calculation of your credit score. An unpaid charge-off will affect your credit score more when it first happens. As time passes, your credit score can improve if no additional negative entries are placed in your credit report.”

Missing a payment is bad for your credit score, but missing multiple payments should be avoided at (nearly) all costs.

Having a high credit balance.

Last time we wrote about managing your credit score, we asked author and debt expert Gerri Detweiler (@gerridetweiler) for advice. She told us about the importance of having a good credit balance.

It’s not enough to just pay your credit card bill each month. According to Detweiler, you want to make sure you keep your balance at around 20-25% of your credit limit.

She also warned that most issuers report balances before your payment is received, so even if you’re paying your bill back in full, you’ll still want to keep that balance from getting too high or risk negatively impacting your credit score.

Not having a credit balance at all.

Alright, so if racking up too many charges on your credit card can hurt your score, wouldn’t it be better not to have a credit card at all?

Nope! That’s also bad for your credit. In a Forbes (@Forbes) article presented by (@RentDotCom), the authors caution against having too few kinds of credit: “having just a single type of credit can decrease your score. That means even if you’re building credit by paying student loans or in some other way, a credit card can still help you make your credit history more diverse.”

If you don’t think you’ll be able to qualify for a credit card, you can consider a secured credit card. A secured credit card requires you to put down some money as collateral, but it will allow you to start building up your credit score so you can qualify for a regular credit card one day, should you choose to do so.

Paying for a rental car with a debit card.

That same Forbes article offers another quirky way you can hurt your credit score. Apparently “For some car rental companies, when customers use a debit card it causes them to order a hard inquiry on their credit.” That’s why they advise you “Pay with a credit card or check the rental application to keep this from happening.”

It’s hard enough just paying your bills on time without worrying about the sneaky ways you can hurt your credit score without even realizing it. You can learn more about credit in our eBook Credit Workbook: The OppLoans Guide to Understanding Your Credit, Credit Report and Credit Score. Hopefully, we’ve helped you to remain ever vigilant and get that score moving in the right direction. Up!

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Maggie Germano (@MaggieGermano) is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit
Jeanne Kelly (@creditscoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out her site to get the credit help you need!

Have Bad Credit? Check Your Credit Report!


Your credit score is a snapshot of your creditworthiness. But it isn’t the full picture.

Do you have a “bad” credit score? And if so, what does that really mean? While definitions of a bad FICO score vary, it’s generally true that any score below 630 is going to get you either a) turned down for a loan or b) charged much higher interest rates in order to borrow money.

It doesn’t quite seem fair that one little three digit number should have so much power over your finances, but these scores aren’t just plucked out of thin air. They’re actually based on the information in your credit report.

Here’s a simple way to think about it: Your credit report is like a test and a credit score is like the grade that you receive on that test. So if you’re wondering why your credit score isn’t so hot, then it’s best to look back at the information that’s contained in your report.

And if you’ve never even heard of a credit report before, don’t worry: we’ve got you covered too.

What is a credit report?

“A credit report is a record of your credit activities created by a consumer/credit reporting agency (CRA),” says attorney and best-selling author of The Plastic Effect, Stephen Lesavich, PHD (@SLesavich).

“The most common type of CRA is a credit reporting bureau. The three major credit reporting bureaus in the United States are Equifax, Experian and TransUnion. The credit reporting bureaus routinely collect and record information from lenders who have loaned you money, credit card issuers, and other financial institutions who have extended credit to you.”

Lesavich says, “Your credit report lists all accounts for which money has been lent to you and credit extended to you.”

Think of your credit report like a summary of how much money you’ve borrowed and how reliably you’ve paid that money back. For a potential lender, it’s an indicator of how likely you are to pay them back.

How does a credit report work?

“Your credit report includes financial information (e.g., your mortgage, loan, and credit card account balances), and your payment history (including on-time and late payments),” says Lesavich. “Also included is a list of any legal actions you have taken (e.g., declaring bankruptcy, having debt canceled, etc.).”

He adds that “Legal actions that have been taken against you (e.g., collections actions initiated against you, a repossession action initiated against you, or a legal judgment or tax lien recorded against you, etc.) are also listed in your credit report”

“Consumers should be aware the data contained in each report may vary, this is because lenders are only required to report to one bureau (not all three),” says personal finance expert Angel Radcliffe, CEO of CAS Consultants (@Cas_Dallas).

“One question clients ask is ‘why does my credit card show up on Experian but not Equifax or Transunion?’ And it’s because said credit card company is not required to report to all three; therefore you may see a variance in scores due to more accounts being reported on one bureau versus the other.”

According to Radcliffe, information on your credit report falls into several sections:

  • Personal Information (Name, Address, Phone, Employer)—This information is updated by any applications the consumer fills out.
  • Judgments/Liens—Any tax liens or judgments from lawsuits, bankruptcy.
  • Collections —Any accounts in collections.
  • Satisfactory Accounts—Any accounts which are in good standing.
  • Revolving Accounts—Typically revolving lines of credit & credit cards.
  • Inquiries—Requests made for your credit report. Includes soft & hard pulls. Inquiries remain on your report for two years.

How long does information stay on your report?

“While there are many sections which make up your credit report,” says Radcliffe, “it is important to understand how the information is updated and how long negative information can remain. Negative information is allowed to remain up to seven years, ten years for bankruptcy filings.

Lesavich says that “In general, negative but accurate information (e.g., late payments, missed payments, etc.), stays on a credit report from seven years to ten years from the date of the last negative activity. Some remain on indefinitely.”

Lesavich provides a quick guide to how long different kinds of information stays on your report:

  • Chapter 7 or 11 bankruptcies: Seven years.
  • Chapter 13: Ten years.
  • Collection Accounts: Seven years
  • Public Records (legal judgments, paid tax liens, etc.): Seven years
  • Unpaid tax liens: Indefinitely
  • Credit Accounts (credit cards, loans, etc.): Ten years from the date of last activity.
  • New Credit Inquiries: One to two years depending on the type of inquiry.

How to dispute errors on your report.

Believe it or not, sometimes wrong information will appear on your credit report. If that happens, it could be negatively impacting your credit score. You’ll want to get that fixed pronto.

The first step is to check your credit report to make sure all the information on it is correct. Remember, information will vary between your reports from the three bureaus. So something that might be correct on one report might be incorrect on another.

Here’s the good news: you can get a copy of all three reports for free!

By law, each of the credit bureaus needs to provide you with one free copy of your credit report per year if you request one. So all you need to do is ask! Just visit or call (877) 322-8228.

Lesavich suggests that “Since you are entitled to one free credit report from each credit reporting bureau, consider ordering one of your credit reports from one of the credit reporting bureaus in each four-month period during a calendar year. This way, you can monitor your credit for free throughout the year.”

“Review the information on each of your credit reports and take action to correct any errors you find,” says Lesavich. “If you find any errors in your credit report, you can dispute the errors electronically directly from your free credit report. The three credit reporting bureaus each provide you with a method to initiate a dispute directly from the display of your free credit report. You can also dispute any errors you find in writing.”

For more in-depth instructions, Lesavich points towards a document on the FTC website titled FTC Facts for Consumers – How to Dispute Credit Report Errors

In general, at least two steps are required for every incorrect entry you find on your credit report,” says Lesavich. “You must write to both the credit reporting bureau that reported the error, and the appropriate creditor. In these letters, you must indicate which entry you want to dispute as inaccurate, and explain in detail why you think the entry is inaccurate and provide supporting documentation to prove your assertions.”

The information on your credit report determines your credit score. Errors on your report could mean the difference between buying that dream home and missing out entirely. Get a copy of your report and make sure everything is accurate. Your financial future could depend on it!

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Stephen Lesavich, PhD, JD, (@SLesavich) is an attorney, credit card expert, award-winning and best-selling author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards”.
Angel Radcliffe, (@Cas_Dallas) MBA is a Public Speaker, Author, Motivator & Entrepreneur.  She is the owner of CAS Consultants, a boutique consulting firm in Dallas, TX focusing on ‘Empowering Entrepreneurs Through Financial Management’. Ms. Radcliffe is a recipient of the National Financial Educators Award & is dedicated to educating the community on Financial Literacy – Credit & Budget Management for Consumers & Small Businesses.

How Bankruptcy Leads to Bad Credit

How Bankruptcy Leads to Bad Credit

Filing for bankruptcy doesn’t always lead to bad credit, but only if your credit is very bad to begin with.

There are many, many different ways that you can lower your credit score. You can take out too much debt, especially high-interest credit card debt. You can also pay bills late or not pay them at all. And the more frequently that happens, the worse your score gets.

A lot of these behaviors can also lead you to file for bankruptcy. This is a legal process wherein a person (or business) admits that they can’t pay all of their debts. The process allows them to settle those debts with their creditors (aka, the parties to whom they owe money), oftentimes for less than what they actually owe.

However, filing for bankruptcy isn’t all sunshine and debt-free kitty cats. It can mean losing your house, car, or other valuable property. It can also mean having a portion of your income earmarked for debt repayment.

And then there’s what it does to your credit score…

In short, it’s not great.

The only way bankruptcy wouldn’t hurt your score is if high debt load and late payments have hurt it badly already.

Think about it like this: If the kinds of financial problems that cause bad credit are a train ride, then bankruptcy is the final stop on the line.

How bankruptcy affects your score

“Bankruptcy does negatively affect a credit score at first, but less so as time increases from the filing date, says Randall R. Saxton (@SaxtonLaw), founder of Saxton Law, PLLC. “However, for individuals who already have negative items on their credit report, the initial drop is not as much as it would be for someone with excellent credit that files a bankruptcy petition, which could range from 160–220 points.”

A drop of 160–220 points could be enough to take you from a great score to a downright bad one.

According to Tracy Becker (@tracybecker), President and CEO of North Shore Advisory, Inc, a leading credit restoration, education and monitoring company, the fact that bankruptcy could so drastically lower a high score, “is one reason it is so important for an individual to be aware of their credit scores, so they can make an educated decision before moving forward with a bankruptcy.”

On the other hand, someone whose score is already quite low would have little to lose, credit-wise from filing for bankruptcy.

“Many individuals do not realize that by having many late payments, collections, and defaults, their score may be almost as low as they would be if a bankruptcy occurred,” says Becker.

“Once they find out their credit is already poor they can move forward with the bankruptcy process with an understanding that their scores will not see a tremendous impact.”

When it comes to bankruptcy affecting a person’s score, one overlooked factor is the number of accounts that are included in the filing.

According to Saxo, “An individual who has fewer accounts with amounts owed will have less of a drop than someone with many accounts.”

The different kinds of bankruptcy

Before we moving on, we should talk about the different kinds of bankruptcy.

Chapter 7: This is the simplest and least expensive form of bankruptcy, but that simplicity comes with a price. Under Chapter 7, a person can quickly discharge their debts by surrendering their assets: aka, their car, their house, and other valuables. Those assets are then used to compensate creditors.

Chapter 13: Under this form of bankruptcy, a person repays all or part of their debts according to a repayment plan—a plan that cannot last longer than five years. The bankruptcy court must approve the repayment plan before it begins, and the debtor actually makes their payments directly to the court, who then pays the creditors in return. In order to qualify for Chapter 13, a debtor must meet certain income and debt-load requirements.

Chapter 11: This is a form of bankruptcy that’s most commonly used by corporations and businesses. However, it can be used by individuals as well. Chapter 11 involves a restructuring and reorganization of a person’s debt and assets. It is much more complicated—and thus much more expensive—than either Chapter 7 or Chapter 13. It can allow for a debtor to repay their creditors over time according to a court-approved repayment plan and can be a good option for someone who does not qualify for Chapter 13.

When it comes to your credit score, the main difference between these Chapters 11, 7 and 13 comes down to how long they will affect your score.

How long does a bankruptcy hurt your score?

“All personal bankruptcy types have a major impact on scores (unless they are already poor). Some bankruptcies remain on credit for seven years while others remain for ten,” says Becker.

All the accounts that are included in the bankruptcy are marked as such on a credit report. They do not disappear once the bankruptcy is finalized and they can remain for seven years. Every year from the date of the original delinquency (bankruptcy) scores will improve but not dramatically.

“Usually after the first 5–6 years from the bankruptcy, credit scores are impacted minimally,” she says.

But when it comes to just how long a bankruptcy can affect your credit, the type of bankruptcy filing does make a difference.

According to Becker, “Chapters 7 and 11 remain on a person’s credit report for ten years, regardless of whether it was discharged or dismissed.” She also says that Chapter 13 bankruptcies “can remain on file for ten years from the date filed but, if discharged, will remain on file for seven years from the date filed.”

“Debts remain active during a Chapter 13 bankruptcy plan, which lasts between three and five years,” says Saxton.

“Thus, the removal of discharged debts from the credit report which occurs after seven years can take three to five years longer for a Chapter 13 bankruptcy than a Chapter 7 bankruptcy.”

However, while the effect on your score might become minimal, the bankruptcy filing itself still remains on your credit report.

After seven years, items such as debts, judgments, and foreclosures that were discharged by the bankruptcy are removed. However, the record that a bankruptcy was filed remains on the credit report for ten years,” says Saxton.

This means that a lender who pulls your credit report during a loan application might still be wary of lending to you—or might insist on raising your interest rates—even if your credit score has recovered.

How can you improve your score post-bankruptcy?

“To improve your credit after a bankruptcy a person can apply for specific cards that gear towards those with poor or no credit,” says Becker. “These cards are “secured credit cards”.  It’s important to make sure the credit issuer reports the history to the credit bureaus.”

“Once they gain approval they need to use the card responsibly. After using the card for a year they can check their scores and see how they have increased. At that point, they may have access to approvals on better non-secured cards. They can build upon their responsible use of the new credit and time passing.  At the third year seeking out a highly qualified credit expert for advice on credit improvement can also help boost the scores prior to the five or six year wait,” she says.

“If consumers file for bankruptcy due to mismanagement of finances they should learn from the mistakes they made that led to the problems and set up a budget/financial plan that will help them to rebuild their financial standing.”

Do you have a story about how you recovered from bankruptcy? We’d love to hear about it! Let us know on Twitter at @OppLoans.

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Tracy Becker is the President and CEO of North Shore Advisory, Inc., a leading Credit Restoration, Education and Monitoring Company specializing in Business & Personal Credit Services. Tracy is a FICO Certified Professional & Expert Credit Witness, she has been improving both consumer and business credit as well as educating professionals and individuals for almost thirty years. North Shore Advisory has helped thousands of businesses and individuals to have the most opportunity and savings great credit can offer.
Randall R. Saxton (@SaxtonLaw) is the founder of Saxton Law, PLLC, and practices in the areas of bankruptcy, tax, business formation, and estate planning. Randall also serves as the JAG for the Mississippi State Guard, President of the State Guard Association, as a Director of the Madison Chamber of Commerce, and is the author of the fictional thriller, Red Sky Warning. He does volunteer work as a Mediator for the Jackson Municipal Court and as an Emergency Response Team member.