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Why Bad Credit Happens to Good People

When people envision a person with bad credit, they may imagine a worn down casino dweller who has visited the wrong loan shark one or two many times.  But in reality, most people with bad credit are much more like the guy or girl next door. Bad credit can happen to normal, everyday Americans who have never made any life-destroying decisions or been careless with their money. There are countless good people out there who are in situations that can lead to bad credit simply because they don’t understand the basics of maintaining their credit score. Brush up on the fundamentals of building good credit and keep the bad credit blues away.

The 3 Money Mistakes Anyone Can Make

Ignoring your credit utilization ratio

Let’s say a person gets their first credit card with a $1000 limit. Now, they may be excited with all the purchasing power they have so they go out on a nice little shopping spree and spend about $800. While they have every intention of eventually paying this off, in reality, credit card companies actually view this as abusing your credit. This is because credit issuers will perceive you to be outspending your means if you constantly are using a large percentage of the credit allowed to you. Experts recommend that you spend no more than a third of your credit limit, and only carry a balance when absolutely necessary.

Forgetting Payment Dates

Life can be unpredictable. Say you miss your flight at some tiny regional airport, your car breaks down, or your wife goes into labor with octuplets. Hectic times can lead everyone to overlook payment dates! You understand this, and so do we. The only entity that doesn’t seem to get it is your credit card company. One thing everyone must do when they use credit cards is make payments on time. Every time you overlook a payment date, credit issuers view you as a little less reliable than you were before, and your credit score will certainly go down. Tie a ribbon around your finger, write your payment date on your hand or stamp it on your forehead, set up auto pay for all your cards; whatever you have to do, just make sure you pay your bills on time!

Thinking you don’t need credit cards

This can be one of the biggest myths of credit cards. When you’re living inexpensively and paying your own way in life, one can easily be in a situation where you don’t need any credit and can afford to live solely off your checking account. While this certainly does simplify things, it won’t get you far with your credit score. Why? When you use a credit card and pay back your debts in a timely fashion, you're proving your reliability to credit issuers. Repeated demonstrations of your trustworthiness increases your credit score and allows these companies to place more and more faith in you. When you want to make that first big purchase of a house, car, or 30- foot yacht, if the credit issuers have no history of your money habits they will be far less likely to give you a loan. Thus, even if you don’t need to be lent any money, it is a good idea to open up a credit card, charge a couple purchases every month, and pay it back in a timely fashion. Even average credit is better than no credit, so start building up your credit score today.

As you can see, there are many easy mistakes good people can make that will lower their credit scores. Indeed, credit scores often have less to do with moral intentions than they do with the organizational capabilities of the person who receives the loan. As long as you avoid the three aforementioned mistakes, you can easily be both a good person and have good credit.

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Elisabeth Chan's picture

Elisabeth Chan is Creditnet's resident credit card expert. Elisabeth graduated Magna Cum Laude from Brigham Young University's Marriott School of Business.

When she's not rating and reviewing credit cards, Elisabeth enjoys gushing over her daughter (who is her exact clone), eating out (sushi and Chinese are favs), or attempting to conquer the pilates reformer machine (so far, all attempts have been futile).

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