You’ve been slapped with a bad credit rating. Is it the end of the world? Not at all.

People obtain bad credit ratings for many reasons, and in half of the cases, it’s not their fault. For example, you could get a bad credit score simply because someone in the credit bureau made an error in entering the data. Or someone with the same name as yours defaulted on a loan and then registered that default under your name. Or else you moved to a new house and last month’s credit card bill got lost during the shuffle and you forgot to pay it. An expensive mistake, for sure, but an honest one. Failing to make minimum payments on a credit card consistently is definitely bad news, but forgetting once or twice to make a payment does not merit condemnation.

If your credit rating is less than good, it doesn’t mean that it will be this way forever. You can begin to fix the situation almost immediately, but you have to do some work to accomplish this. Now, if you’re constantly behind in financial payments or if you have other financial struggles that you’ve always dealt with because of poor money management, then you will not have a quick fix. In this case, credit counseling may be the best option for you to consider.

Indeed, bad credit is so common that the US Trustee Program of the Department Of Justice has approved of credit counseling agencies so that they can help people with credit difficulties. Their web site is www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm, and there are a list of credit counseling agencies available in your area that you can contact to help you.

Why Does Bad Credit Exist? In many cases, of course, the reasons you have bad credit are completely under your control. Among them are compulsive shopping, overspending, living beyond your means, et cetera. However, in many cases, you cannot control the reasons bad credit have happened to you, such as when personnel at the credit bureaus incorrectly enter your personal information. If you correct errors made in these types of situations, your credit rating will be restored quite easily and quickly.

Of course, other reasons you have bad credit include being laid off from your job, which is becoming increasingly common in today’s job environment. This in turn will affect how and when you can pay your bills, so if you’ve been responsible previously, suddenly having substantially reduced or no income can greatly affect just how responsible you can be with your bills.

A second reason this may occur for you is if you are suddenly facing foreclosure for your home. Even people with steady jobs face this situation, since many bought overpriced homes in the previously inflated market through lenders who were willing to cut corners to help them buy homes they really couldn’t afford. Many of these homes also had such risky elements as adjustable-rate mortgages, where the rate starts out at a very reasonable level and which the homeowner can pay easily. Then, however, rates can suddenly spike and this can increase the mortgage payment by hundreds or even a thousand or more dollars a month. Facing these types of situations, even homeowners who have previously been responsible about making mortgage payments are suddenly faced with a mortgage they cannot pay. In this case, foreclosure is often the only way the situation can rectify itself.

Yet another situation you might find yourself facing is divorce, which can also adversely affect your credit rating. In fact, many credit counselors say that this is a very common reason to suddenly have a bad credit rating when it’s previously been good. In divorces, of course, assets must be divided between former spouses. In addition, there are often alimony and/or child support payments to make as well. Therefore, income that previously was entirely adequate suddenly isn’t enough.

failing health can ruin a lot of credit ratings – people who fall ill unexpectedly or are suddenly suffering from a disability will not be able to continue working. We see here a domino effect: loss of health = loss of job = loss of earning potential = limited cash

Finally, over-stretching one’s credit limits can do the most damage- it amazes us how people’s wallets are overflowing with plastic. Instead of keeping one or two credit cards, they have 10! In addition to the usual cards like MasterCard, Visa, Diner’s and American Express, they also have credit cards from department stores, gas stations, and other retailers. When one card is maxed out, they simply use the next one.

Ways to Avoid Bad Credit: Before you make any major purchases, make sure you access each of your three credit reports (one from each of the three major bureaus). Each consumer is allowed one free credit report a year from each of the three bureaus through the government web site annualcreditreport.com. If you need to keep track of your credit report more often than once per year, it might be a good idea to sign up with one of the many credit monitoring services available. These services offer “free” credit reports along with other services, usually charging a monthly fee. If you find that there are any inaccuracies in your credit report, report them immediately to the bureau in question in writing. Be aware that you must report any inaccuracies or challenges in writing. The bureau in question must respond to your challenge and either verify the information or remove it. You should also know that unfortunately, inaccurate information might reappear again later as the system cycles through, so you may have to do this more than once. Eventually, though, the information will despair and the fully cleared from your report. Be vigilant and make sure you do this.

To further avoid bad credit and maintain healthy credit rating, you should:

Take stock of your financial situation – jot down all sources of your income and how you’re going to spend that income. Create a budget and stick to it. Discipline in spending works in your favor – banks are more predisposed to lending money to individuals who exhibit prudence;

Really understand what you NEED to spend money on. We are a nation of excess. Frivolous expenses must be avoided while trying to repair your credit rating.

When you pay off credit card debt, you want to pay the highest interest rate credit card off first. In order to do this, you need to make the minimum payments on all of your other cards, and then apply the rest of your money to the highest interest rate credit card you have. Do this each month until the highest rate credit card is paid off, and then move on down to the next highest interest rate credit card. Make minimum payments on all of your other cards, and then take the balance of your allotment and put it all on the highest interest rate credit card you have. Continue doing this until all of your credit cards are paid off. This should happen relatively quickly, as long as you practice discipline and diligence.

Finally, make sure you pay your bills on time. Making mortgage, utility, tax and other bill payments on time shows that you are diligent and prudent in your spending practices and this will reflect positively in your credit report. So if you’ve got bad credit, don’t panic. Simply taking some care to pay bills on time and be prudent in your spending, as well as keeping a careful watch on your credit reports from all three bureaus, will bring you back to good standing in very little time.

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