Definition
Bad credit describes a history of late or missed payments and a higher probability of future payment problems. For individuals it shows up as a low credit score; businesses can have bad credit too. Low scores make borrowing more difficult and more expensive.
Key facts (quick)
– Typical U.S. credit files are held at three bureaus: Equifax, Experian, TransUnion. Lenders use those files to calculate credit scores.
– The common U.S. score is the FICO Score, which ranges from 300 to 850.
– Scores of 579 and below are generally treated as “bad.” Scores from 580–669 are often called “fair.”
– Payment history is the single most influential factor in most scoring models: on-time monthly payments matter most.
Common examples of bad-credit events
– Multiple missed payments or accounts put in collection
– Loan defaults or repossessions
– Bankruptcy
– Very high outstanding balances relative to credit limits
Practical steps to improve bad credit (action list)
1. Always pay at least the minimum by the due date. Payment history drives score changes most.
2. Set up automatic payments or calendar reminders (email/text) so you don’t miss due dates.
3. Pay more than the minimum whenever you can. Reducing principal lowers interest costs and improves your standing.
4. Focus on highest-interest debt first to free up cash faster, then roll that freed cash toward other balances.
5. Lower your credit utilization ratio (total balances ÷ total credit limits). Aim to get utilization under 30%, and lower is better.
6. Avoid unnecessary new credit applications; many inquiries in a short time can hurt your score.
7. Keep old, unused credit card accounts open (unless there’s a compelling reason to close) to preserve credit history and total available credit.
8. If you can’t get a regular card, consider a secured credit card: you post a deposit that becomes your spending limit; responsible use can rebuild history.
9. Beware of advertised “quick fixes” — reputable sources warn there are no genuine shortcuts to repairing credit.
How long does rebuilding take?
– There’s no fixed timetable. Small improvements (for example, reduced utilization) can show effects within a few months. Major events such as bankruptcy can take years to recover from. Consistent on-time payments is the principal long-term remedy.
Can you have too many credit cards?
– There’s no legal limit on how many accounts you can hold. But opening many accounts in a short span can lower your score because of multiple hard inquiries and a shorter average account age. Only apply for what you actually need.
Most important factor in your credit score
– Payment history (whether you pay bills on time) is the largest single influence. Missing payments can lower scores quickly.
Checklist to use now
– Enroll in autopay for at least the minimum payment.
– Get emailed or texted billing reminders.
– List debts and interest rates; make a repayment priority plan (highest interest first).
– Calculate current credit utilization (see worked example below).
– Keep oldest good accounts open; don’t add new cards unless necessary.
– Consider a secured card if you lack access to unsecured credit.
– Contact a nonprofit credit counselor if debt feels unmanageable.
Worked numeric example: credit utilization
– Situation: You have two credit cards.
– Card A limit = $6,000; balance = $2,400
– Card B limit = $4,000; balance = $1,600
– Total credit limit = $10,000. Total balance = $4,000.
– Utilization = 4,000 / 10,000 = 0.40 = 40%.
– Action: You pay $1,800 toward balances (e.g., $1,200 on Card A and $600 on Card B).
– New total balance = $2,200. New utilization = 2,200 / 10,000 = 22%.
– Result: Utilization dropped from 40% to 22%. That kind of reduction can help scoring models within a couple of monthly reporting cycles, especially when paired with on-time payments.
Sources (for further reading)
– myFICO — “What’s in My FICO® Scores?” https://www.myfico.com/credit-education/whats-in-your-credit-score
– Consumer Financial Protection Bureau — “Getting and Keeping a Good Credit History” https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/
– Experian — “How Long Does It Take to Repair Your Credit?” https://www.experian.com/blogs/ask-experian/how-long-does-it-take-to-repair-your-credit/
– Investopedia — “Bad Credit” https://www.investopedia.com/terms/b/bad-credit.asp
Educational disclaimer
This explainer is for educational purposes only and is not personalized financial advice. For guidance tailored to your situation, consult a qualified credit counselor or financial professional.