There are many reasons people have bad credit. A negative credit report could result from a legal judgment from a successful lawsuit, late payments, unpaid collection accounts such as utility and medical bills, wage garnishments due to unpaid debt, tax liens, repossession of vehicles, and home foreclosure. However, the current credit system does not distinguish between bad credit that happened as a result of job loss or illness and that from poor financial management.
Job Loss
Job loss is a common reason behind bad credit. When someone loses a job and its income, it is often necessary to pay food and rent bills with whatever money the person has left.
Illness or Accident
Medical situations such as a sudden illness or a car accident can cause many credit problems. Decreased finances from lost work time are a factor in bad credit, as are unpaid healthcare bills getting turned over to collection agencies and even successful lawsuits.
Death of Spouse
The death of a spouse is a devastating event that could also cause the surviving member of the couple to have bad credit. The loss of a spouse decreases income and increases expenses such as medical bills and funeral expenses, and can easily lead to even the most honorable debtor defaulting on his or her obligations.
Divorce
Divorce is another common cause of bad credit. A spouse could be hit with child support obligations that exceed the amount of money ever spent on raising his family, and this can dramatically impact his ability to pay credit card bills. Legal fees for getting a divorce and custody battles also can affect even the most solid of finances.
Irresponsibility
Some people have bad credit due to simple financial irresponsibility. They might buy a lot of things on credit that they cannot really afford, or even use their lines and loans to gamble, drink alcohol or even purchase drugs.
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