What We Can Learn From People with Bad Credit

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Do you know people with bad credit? Do you happen to have bad credit yourself?

people with bad creditWe often discuss here the concept of mindset.  Run The Money was founded with the idea that it takes the same degree of discipline, mental toughness, and personal growth to succeed in both personal finance and living a healthy life.

I once saw a blog post or comment (can’t recall the source) that equated being in debt with being overweight.  You’re in the hole with your money and you’re in the hole with your weight.

Well, if that’s the case, then think of your FICO score as your financial weight.  Instead in this case, the higher the better!

In a recent U.S. News and World Report survey of 1,500 people with credit scores under 640, 35% of the respondents said they don’t do research before applying for a new card. While this might not be earth-shattering news, it does give a glimpse into the mindset of people with bad credit.

Rather than look for credit cards that charge lesser interest rates or have better terms, they don’t do anything. Then again, it’s not like those who do any research are hitting it out of the park. U.S. News also found that 60% of people spend “less than an hour researching fees, interest rates and terms and conditions when applying for a new credit card.”

WTF? Seriously? No wonder they have bad credit, right?

The survey findings give us a chance to delve into the mindset of these individuals. Bad credit comes from bad habits. So, I think it’s important to explore this and see what it can teach.

There’s always hope I believe. But, it comes at a price. That price is education, failure, correcting course, and putting in the hard (but very necessary) WORK.

Let’s explore this more deeply. Shall we?

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2017 U.S. News & World Report Survey of People with Bad Credit: What they Found

People with bad credit need credit cards to pay for life’s necessities.

Unfortunately, many people with bad credit need credit cards to pay for things like “groceries, gas or other household necessities at least once in the last year” the survey found. To me, that is literally a ‘house of (credit) cards’ collapsing all around these people.

As we saw above, people with bad credit fail to do research and don’t know their numbers. If that’s the case, it’s no wonder why they fall into debt.

If you’re not budgeting, don’t know where money is going, and use credit for everything, it’s like you keep your own little Ponzi scheme going. And it’s why you continue to need to rely on credit to pay for everything.

I would be interested to know what “household necessities” are. If you’re talking cable television, forget about it! Dump that luxury and get your budget together. I imagine they’re a lot of things people with bad credit can cut that they confuse with a need when it’s really a want.

Chances are that this isn’t a plight of only people with bad credit either.

One-third of all people with bad credit are not actively trying to improve their score. Also, people with bad credit aren’t diligent with checking their credit score.

So, you have bad credit and you think it yourself, “Meh, I don’t need to really worry about that.” Right. That makes sense.

If you’re not actively taking steps to improve your credit situation, nobody can help you. This isn’t another person’s problem. It rests squarely on the shoulders of people with bad credit.

Become financially literate. Learn the language of finance. Know your numbers. Start a budget. Live within your means. Expand your income. Decrease unnecessary expenses. Get with the friggin’ program.

Enough is enough.

While many people with bad credit are trying to rebuild their credit, they’re not seeing progress.

Forty percent of people with bad credit haven’t seen an uptick in their score and 27% don’t know if their score changed. What they fail to realize is that this stuff doesn’t happen overnight. And for those who don’t know — well then you aren’t actively working on it.

You’re not seeing progress? Well, no kidding. You don’t do research, you don’t check your score, and you need credit for the basics in life. What do you think is doing to happen?

Look, I get things happen. I know life can be hard. I know we all don’t begin at the same starting line.

This isn’t about that. It’s not about who is more privileged. Rather it’s about personal responsibility.

Steps for people with bad credit to take to increase their score. These are also things you want to be doing even if you have good credit.

#1 – Start a budget. Learn more about changeable vs. unchangeable expenses and sign up for our newsletter to receive our Budget Booster and Monthly Budget Spreadsheet.

#2 – You also need a plan to pay off your existing debt. Check out how I paid off $60,000, how Danielle is paying off $70,000, and how Jodi paid off $67,000. It is possible.

#3 – Know your credit score and how it’s calculated. Check your credit score at least once every year. You can do so for free at AnnualCreditReport.com. There are also paid options which you can use more than once per year with myFICO, The Fair Credit Group, and the three credit bureaus: TransUnion, Experian, and Equifax.

#4 – Make sure to dispute any errors on your credit report. Also, if you have a more common name, you want to make sure you do this. Yeah, I’m looking at you, James Smith!

#5 – U.S. News also recommends that you manage your monthly credit utilization as well as shop for new credit quickly. Credit utilization is the amount of available credit you’re using, so you want to get out there and get cards with lower interest rates. Close any old accounts with those annoying maintenance fees.

Here are two ways people with bad credit can begin rebuilding your credit score right now.

The first thing you can do is get credit cards with better interest rates. I included a few that were recommended by U.S. News below, but remember that it’s important to do your own research!

Another alternative is personal loans. While I wouldn’t recommend these in every case, depending on your situation it could be something to consider. If you can lower your rate and your monthly payment (without owing a ton in interest on the backend), you’ll be saving yourself money in the long-term. Take a look at SoFi’s personal loan calculator and use my link especially for Run The Money readers.

Facts about your credit report

As U.S. News explains, your “score is calculated from data in your credit report at the following weights of importance:

  • Payment history: 35 percent
  • Amounts owed: 30 percent
  • Length of credit history: 15 percent
  • New credit: 10 percent
  • Credit mix: 10 percent”

There’s also a difference in score ranges. In 2006, the 3 major credit bureaus (see above) developed the VantageScore. But, many lenders still rely on the general FICO score.

In my opinion, this newer VantageScore is like curving a test in my book. Perhaps that’s why it’s not widely accepted yet.  Here’s a chart for comparison sake …

Score Definition General FICO VantageScore
Exceptional or Excellent 800-850 750-850
Very Good 740-799
Good 670-739 700-749
Fair 580-669 550-649
Very Poor 300-579 300-549

People with bad credit can change their lives if they want to. It’s up to each individual person.

This article is not meant to bash people with bad credit despite my “tough love” tone throughout. It sucks being in that situation. But, just because I comment here on this predicament here doesn’t mean you pass the blame of the situation you caused in your own life onto me. Too many of us (myself included) don’t take responsibility. We then blame others silently or when we’re called out for our screw-ups.

These findings by U.S. News should jolt you awake. They should make you want to better your life. Whether you have bad credit or not, it should motivate you to keep making changes that enhance your financial situation.

After all, it’s not just about your credit score. Rather, it’s about your family’s general well-being. Be an example to your family and other families. Take financial responsibility and become financially literate.

Do you have bad credit? Do you know people with bad credit? What’s being done to fix it? Please tell us your story in the comments.

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4 thoughts on “What We Can Learn From People with Bad Credit

  1. Great article, Dave! You offer some solid advice for repairing one’s credit. Another head-scratcher for me is when someone says they don’t care about their credit score, almost as if bragging. When you take into account how much impact a credit score can have (i.e., employment application, apartment application, etc.) you quickly realize how important it is to grow and nurture your credit score.
    Cody @ Dollar Habits recently posted…How to Harness the Power of HabitsMy Profile

    • Couldn’t agree more, Cody! I appreciate the comment. Sometimes I think when people aren’t educated in an area they know they should be, they “play it cool” and act like they don’t care. These are the same people that worry about it but don’t do anything until it’s too late.

  2. Nice write up with solid tips. I wish more people would read this but unfortunately, people with bad credit probably aren’t reading enough financial blogs either. Fixing bad credit is a lot like being overweight. You didn’t get 40lbs overweight in a week so don’t expect to lose 40lbs in a week either. What I really love is when someone with terrible credit tells me about all their credit card rewards. Really?

    • Haha love that line about credit card rewards! It’s like people saying they don’t want to pay off their mortgage because of the tax credit. Why isn’t this stuff taught in school from an early age??

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