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Bad Credit Help

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Mark Cappel
UpdatedMar 23, 2012
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    6 min read
Key Takeaways:
  • FICO scores are made up of five key factors.
  • Open three different types of accounts to boost your credit score.
  • Paying your bills on time goes a long way to raising your credit score.

Learn How to Help Yourself Get Rid of Bad Credit

Need help with bad credit? You are not alone! According to the credit reporting agencies and several Web sites devoted to personal finance, the average FICO credit score in the US dropped 20 points in recent years, thanks to the effects of the recession and the increase in home foreclosures.

The state-by-state averages show even more more dramatic variations, again with the differences tied to the foreclosure and unemployment rates in each state. But what is a credit score supposed to mean, and how is a credit score calculated? And just what is FICO, anyway? This article will answer those questions, and explain how to improve your credit score.

FICO score categories

Average US credit score in 2011 was 692

Bad credit can prevent you from

  • Buying a house
  • Renting an apartment
  • Opening a credit card account
  • Getting a vehicle loan at a low rate
  • Qualifying for a cell phone account

Credit scores are also used to set some insurance rates, and in some cases, employers use credit reports when looking at job applicants.

A credit score is meant to be a predictive statistic that guesses a person's likelihood of defaulting on a loan. What is a predictive statistic? It is the opposite of a descriptive statistic. One well-known predictive statistic is the expected score of a future football game. To stick with a football example, a well-known descriptive statistic is the quarterback passer rating. Outside of the sports world, a well known predictive statistic is the EPA fuel mileage estimate for every passenger vehicle sold in the US.

Credit score software
ScoreCredit reporting agencyScore range
FICO Advanced Risk ScoreExperian300 – 850
FICO PinnacleEquifax
FICO PrecisionTransUnion
VantageScore 2.0Experian, Equifax, TransUnion501 – 990
VantageScore 3.0Experian, Equifax, TransUnion300 – 850

Credit reporting software in use

The biggest provider of consumer credit scores in the US is Fair, Isaac & Co., which creates the FICO credit score software used by most US lenders. A FICO competitor is VantageScore. People often ask why their credit scores differ at each of the credit reporting agencies. Each may report different information on your credit report. Also, as you can see in the table "Credit score software," a credit reporting agency may use FICO or VantageScore software to generate your score.

Your credit rating is calculated based on five variables, including: your payment history (do you have any late payments, charge-offs, etc.), the amount and type of debt that you owe, if you have maxed out any of your trade lines, and then several other secondary factors like the length of your credit history and how many recent inquiries have been made to look at your credit history. The single largest impact on your credit score is your payment history — Do you pay your bills on time consistently?

The table "What goes into a credit score?" on this page summarizes each of the variables that go into a FICO score calculation, and the importance of each. Keep this table in mind as we move into the next section in this article.

What goes into a FICO credit score?
ItemWeightPositive FactorNegative Factor
Payment history35%Paying accounts on time consistentlyLate or missed payments
Total debt and total available credit30%Low relative credit utilizationHigh relative credit utilization
Length of positive credit history15%Oldest positive accountNo or short credit history
Mix of types of credit10%Variety of tradelinesToo many of one tradeline
New credit applications10%No recent applicationsToo many applications in a short period of time

Key factors in FICO credit score calculation

A Look Back

To learn why you need help with bad credit, you need to look at your credit report. Go to to receive a no-cost, no-nonsense, no-sign-up-for-anything copy of your credit report. There are three credit reporting agencies (credit bureaus), and you can get up to three reports per year. Order one report from one of the credit reporting agencies now. You can order another from a different agency four months from now, and then another from the third agency four months after that to watch your progress over time.

Think of your credit report as a specialized newspaper published by the credit reporting agencies, which include Experian, Equifax, and TransUnion. It includes account names, balances, credit limits, and payment history. All of what you see on your credit report helps potential lenders decide whether to extend credit to you and what interest rate to charge if they do put your application in the "yes" pile.

Check your credit report for accuracy and examine the negative information, called derogatories that appear. If you see errors on your credit report, take action to dispute the inaccuracies. The hyperlink just mentioned will take you to a page that outlines the four steps consumers can take to dispute incorrect information appearing on their credit report.

The three major credit reporting agencies also offer consumers the ability to dispute a credit listing online:

The credit reporting agencies must follow the rules set in the Fair Credit Reporting Act (FCRA), a federal law. The key rule we focus on here is what calls the 7½-year rule. In general, an account in collection will appear on a consumer’s credit report for 7½ years. The clock starts approximately 180 days after the date of first delinquency on the account. To learn when an account will be removed by the credit reporting agencies (TransUnion, Equifax, and Experian and others), add 7½ years to the date of first delinquency. Later activity, such as resolving the debt, is irrelevant to the 7½-year rule. This rule does not apply for all debts, however. It also has no connection to a state's statute of limitations rules.

Recovering From Bad Credit

Five steps to an improved credit score
Pay your debts on time
Keep revolving lines below 25% use
Diversify your mix of accounts
Keep your oldest account active
Dispute inaccurate credit report info

Steps to boost your credit score

The easiest way to help yourself rise out of bad credit is to pay consistently and on time. Establish a mixture of accounts (called tradelines in the credit world). Lower your credit utilization. That means, do the opposite of maxing-out your accounts.

If you have no credit, then open a secured credit card. A secured credit card requires you to make an initial deposit into an account the card issuer uses as security. For example, you deposit $250 into an account and the issuer approves you for a card with a $250 credit limit. The deposit is not used to make the monthly payments. Pay on time. Your payments will appear on your credit report and start building a positive history.

The ideal is to have three or more open, active accounts appear on your report. Add a variety of accounts as your credit improves. This becomes a virtuous cycle — the more you improve your score the more offers to open new accounts will come to you.


Practice what Bill at calls "good credit hygiene." In other words, develop the habit of paying your accounts on time, and keep your credit utilization low. Add diversity to your accounts so that you can show future creditors you can handle a variety of debt.

Get rid of your debt faster with debt relief

Get rid of your debt faster with debt relief

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