What Can Lead to Bad Credit?

Bad credit ratings don't occur overnight, but once they do, it takes hard work, self control and significant effort to reverse them. Bad credit can limit your ability to borrow money, rent an apartment or in some cases, find employment. The best way to avoid a bad credit score is to become familiar with the common causes of bad scores. Identifying credit traps will help you keep your good score and your good name.

Late Payments

Making timely payments is important. An occasional late payment may seem insignificant, but over time, creditors may find your recurring lateness a problem. Late payments can drive down your overall score and will prevent some lenders from extending you credit. Make payments on or before the due date to avoid credit problems.

Too Much Debt

Another factor that can lead to poor credit is taking on too much debt. Creditors use a technique called "debt to credit ratio" to grade your credit. They compare your current debt with your ability to repay the debt, as determined by your available credit. Ideally, creditors like the debt to credit ratio to hover about 30 percent, but this figure can vary. When you have too much debt, creditor confidence is shaken and you may be labeled as having bad credit.

Impulse Buying

It's nice to have credit available for emergencies or for purchasing big-ticket items, but some consumers succumb to impulse buying. Impulse buying begins with a casual attitude toward credit and credit use. This type of consumer buys indiscriminately without much planning. One or two impulse purchases a week or month may seem insignificant, but these can add up quickly. Impulse buying is an easy way to squander hard-earned credit, and an impulsive shopping lifestyle can end in heartache.

Legal Issues

Legal issues like filing for bankruptcy can affect your credit. Bankruptcy is an official notice to creditors that you can't pay your debts. Bankruptcies remain on your credit history for up to seven years. Court-ordered garnishments for child support or tax liens from the Internal Revenue Service can result in bad credit. If your home is foreclosed on or vehicles are repossessed, this can also damage your credit. When you face legal issues, you should hire competent legal representation to help guard your credit.