|Bad credit tougher to fix than no credit|
|The Debt Adviser by Steve
Which is worse, bad credit or no credit?
What would you say, Mike, if I asked you which
is worse, a bad girlfriend or no girlfriend? If I had to choose, I believe I would
take "none" over "bad." Both require some work to remedy,
but "the absence of something" is an easier, less stressful situation
Bad credit means, among the many possibilities, that
you have made mistakes, had life challenges such as divorce or a job layoff, just
did not understand the commitment you were making or any combination of these
and other factors.
Whichever way you arrived at bad credit,
it was likely a bumpy, nerve-racking ride that you would, in hindsight, prefer
to have avoided. I know there are some out there who think that bad credit comes
from drinking too much champagne and working too little; but my experience has
not borne this out. I think that this myth is so popular because we all want to
think it couldn't happen to me. It only happens to those who do something to bring
it on themselves. Comforting logic, but wrong. It can and does happen to anyone!
credit, on the other hand, is simply a matter of having no credit history because
you have paid with cash, check or debit rather than credit and have not borrowed
money for a car, home or other large purchase.
There are limited
cases where bad is better than none, or so I'm told. For example, Boston is full
of Red Sox fans who claim that a bad team is better than none. After more than
80 years of the same negative result, you would have thought they'd have learned
by now. Perhaps 90 will be the charm!
You did not ask, but
I am sure inquiring minds want to know, how to "fix" both of the credit
situations you mentioned. (Fixing the Red Sox will take more space than I have
all bills on time or ahead! To help simplify the process, once you get paid, pay
all the bills that are due between then and your next paycheck. Allow time for
the mail and processing.
- Learn to live on your
take-home income. This means if you do not have the money, don't buy it. In other
words, do not add to your existing credit balances.
all charged-off accounts that appear on your credit report. A paid charge-off
is much better than just a charge-off.
a realistic plan to allocate a portion of your income to pay off large credit
card balances. A high debt-to-income ratio could be causing you to lose points
on your FICO score.
- Give it some time. Most creditors
look at your most recent credit history (last two or three years).
for a secured credit card. A savings account secures the card in case of default.
- Once you have used your secured card for several
months, apply for an unsecured credit card (just one, don't overapply). You may
have the best luck with a retailer or with the same bank from which you received
the secured card.
- Your credit history measures
all types of credit accounts, so you may want to establish a longer-term installment
loan for a car or some other large purchase loan, such as furniture, with pay-back
terms of longer than one year.
- To avoid problems,
never borrow without knowing how and when you will be able to pay off the balance.
Also, you should establish an emergency savings cushion for those times when life
throws you an unexpected curve.
Good luck with
your credit and to the Red Sox!
Debt Adviser, Steve Bucci, is the president of Consumer Credit Counseling Service
of Southern New England. Visit CCCS
for additional debt
advice or click here
to ask a debt question.