Bad credit can be caused by irresponsible financial practices or via no fault of one’s own. The Fair Isaac Corporation reports the average consumer carries 13 credit responsibilities generally consisting of credit cards and installment loans. Moreover, in 2009 the U.S. Federal Trade Commission (FTC) reports 278,078 potentially credit damaging, identity theft complaints were made according to the FTC’s identity theft clearinghouse and consumer sentinel. This doesn’t include the 721,418 fraud complaints from the same year. Such identity theft can lead to bad credit in addition to faulty credit reporting and individual factors such as late payment of bills.
Poor credit in an economic system sometimes forces individuals to learn from the resulting situations. However, a bad credit situation isn’t always the fault of the individual. If the bad credit is due to individual reasons, it doesn’t have to be a terrible thing. Having bad credit can leave one with new options and as the saying goes, “when one door closes, another may open.”
Knowing what that new door is indicative of learning from bad credit. More specifically, creditors are more likely to be reluctant to lend to persons with bad credit in effect asking one to improve the credit score before any new money is loaned. How an individual learns from the bad credit may lead to different outcomes. This article will illustrate ways an individual may choose to learn from the bad credit.
Report identity theft and faulty credit reporting:
The first step in learning from bad credit is knowing what caused the bad credit. Unfortunately, this may involve some research for no fault of the individual if one’s identity, credit cards or other financial information has been stolen and in the case of poor credit reporting on behalf of financial institutions. To find out if the bad credit is one’s own fault the following steps may be helpful:
• Check bank statements for erroneous or suspicious charges
• Call the bank or credit card company to report lost or stolen cards
• Request an immediate investigation and reversal of false charges
• Order a free credit report(s) from http://www.annualcreditreport.com
• Request a marketing freeze by calling 1-888-opt-out to minimize financial risk
Allow experience to show the way:
In the case of individual bad credit, one can either learn to not be so dependent on credit companies, learn to build credit scores or choose renunciation the credit institution altogether. In either one of these cases, one is learning from the experience of bad credit, and making a decision for oneself about how to move forward with life. A first step one may take in learning from bad credit is to acknowledge and identify what is going on. The following are signs of bad credit:
• Low credit score
• Late payments on bills
• High interest rate
• Financial stress
After the bad credit is identified, one may then begin the process of thinking about it, reacting emotionally to the situation, or simply not caring. Which ever method one chooses the bad credit presents some unique opportunities:
• A chance to recognize one’s financial situation
• A financial reality, in which one must either act or live without credit
• An excuse to not spend money
• The beginning of a new credit life, and the end of an old chapter in one’s life
• A way to learn about protecting one’s credit identity and profile
Immediate solutions and building new credit:
It’s not the end of the world when bad credit strikes. There are several ways to deal with the situation. In the case of identity theft, one can file a identity theft report. The Federal Trade Commission is a Federal organization that may be of assistance in this matter. If the credit problem is due to faulty financial reporting by a financial institution, one may need to produce paper work proving the fault and request the credit reporting agency correct the credit report. To rebuild bad credit caused by personal reasons, a step by step process may be followed. A few tips with which to deal with the bad credit are below:
• Ask the credit company or lenders for debt re-negotiation (ex. lower interest rates, lower minimum payments and payment plan.)
• Contact a reputable credit counseling service
• Stop spending as much or re-budget
• Consult people one feels comfortable talking about such matters with.
• Consider legal options
The above methods may provide some immediate assistance to the situation but are not necessarily a long-term fix or cheap. Credit counselors, credit card companies and others may try to help one achieve a second chance, but what one does with that chance is up to the individual. One can learn a number of things from bad credit such as how to deal with credit card companies, what remedies are available and what steps must be taken to report financial reporting problems and theft issues.
After dealing with the immediate problem, one may then learn how to build new credit through obtaining secured credit cards, paying bills on time, identifying the ways credit scores rise etc. The whole process could take weeks to years depending on the severity and how complicated the situation is.
In summary, bad credit is not usually a pleasant experience that may or may not be caused by individual fault. In identifying, acknowledging and reacting to bad credit one may learn either directly or indirectly, how to deal with the bad credit, build new credit and take new approaches in the future. In these ways, bad credit is a learning experience, and in some cases a somewhat involuntary learning experience.
Sources:
1. http://www.myfico.com (Fair Isaac Corporation)
2. http://www.ftc.gov (Federal Trade Commission)