A
large chunk of the American population is struggling with bad credit. Some
Americans even have no credits at all. While many factors are necessary for
financial stability, excellent credit is one of them. So, how have they been
unable to maintain good credit?
In
this article, we provide answers to why Americans are smitten by bad credit.
And how offering a proper financial education might be the way out of the
endemic.
What Is Bad Credit?
Before
we unravel why most Americans have bad credit, we must know what bad credit is.
Simply put, bad credit is an individual's consistent poor bill and loan
payments history. Bad credit also shows how unlikely the individual will honor
future financial obligations.
Taking
loans, buying cars, or renting a house becomes challenging without good credit.
Plus, people with bad credit are known as credit risk and are not typically
given loans. Now that we know what bad credit signifies, what causes widespread
bad credit in America?
What Factors Contribute to a Bad
Credit
Do
you know the factors that lead to bad credit? Here are some of the factors that
cumulatively tank credit scores;
Loan Defaulting
Loan
defaulting is one of the many ways you can sink your credit score. If you
missed more than one payment and didn't pay by the due date, it is marked as a default.
The
lenders forward the information, including your payment history, to the credit bureaus, which tanks
your credit reputation. Other lenders then view
you as a credit risk unlikely to repay loans.
Bankruptcy
When
an individual or company cannot settle their debts, they have to declare
bankruptcy. When they declare bankruptcy, the credit bureaus factor it into
their credit report, which shows in their lowered credit score. Bankruptcy
filing is a way you can tank your credibility. The payment record stays in their credit report
for at least seven years.
Late Payment
The
credit bureaus include payment history in the report. Payment history takes
about 35% of the whole credit report. If you have consistently made late payments, the creditor sends a report to the credit bureaus. So,
if you continue to
make late payments your
credit score suffers.
Why
Do So Many Americans Have Bad Credit?
While
there are factors influencing why Americans have bad credit, there are some
prominent reasons. Here are two reasons why Americans don't have excellent
credit scores:
● Lack of resources
● Lack of education
Lack
of resources means that Americans aren't able to pay their debt when they have
to. This significantly affects their credit score. Also, education is a
prominent obstacle to having good credit.
Many
Americans have a gap in their knowledge of what credit is, why it is essential,
and how to maintain a good score.
Fortunately,
resources such as the Credit-Lit series offer a straightforward approach to
learning all you need to know about credit and how to get started building a
good credit score.
Conclusion
Many
Americans have poor credit scores because they don't know how the credit
scoring process works.
Fortunately, the solution to ignorance is knowledge.
