5 ways to know when your credit has hit rock bottom


Just like any other self-destructive behaviors that take your life in a downward spiral, poor use and abuse of your credit has the same result. According to the most recent survey from the National Foundation for Credit Counseling (NFCC) of over 2000 Americans over 18 during March 2015, 70% do have financial worries but they are mostly focused on not having enough savings. Strangely, only 8% are worried that they didn’t have enough money to pay for things such as credit card debt payments, car payments or student loan debt. I think it’s almost more important to make payments on time and pay off high-interest debt than it is to focus on lower-interest earning retirement savings when you have to make a choice between focusing on one or the other. The only exception is to have a cash emergency fund to protect you from falling into a credit card debt trap every time your car breaks down.

Here are five tip-offs your credit has hit rock bottom and you may need professional help to pay off debt and rebuild your credit:

  1. Your credit cards are maxed out (and bill collectors call your home). According to the NFCC survey, about 24% of Americans are not paying their bills on time. Are you one of them? If you are dodging phone calls from creditors, you have most likely hit bottom with your credit. That’s because you are paying late or not paying at all, and on your credit report, that reads as a poor payment history. Maxed out credit cards results in a high level of amounts owed on your credit report. Both of these are large factors in a low credit score, according to FICO.
  2. You have been denied for a credit card or a car loan. Credit denials mean your credit score is below what most creditors are willing to consider to risk loaning you money or credit. At this point, there is nothing else you can buy or do with your credit and you have hit the bottom.
  3. You have no savings, no budget. Another telltale sign that your credit has taken a deep dive is if you live your daily life with no thought to what you are spending and what you are saving (or not). According to the NFCC survey, 60% of respondents do not have a budget. And 46% of those said the reason they don’t is because they have a “somewhat good idea about how much I spend on such things as food, housing and entertainment.” The truth is, seeing what you spend daily on paper is the only true way to gauge what you spend, not your memory. And, poor money management breeds late payments and low credit scores.
  4. You are offered credit, but at the very highest interest rates. Maybe you are able to get a credit card, but the introductory rate is 29% or they will offer you a car loan but the interest rate is 17%. These are called subprime interest rates, which are offered to borrowers with poor credit scores who are considered a poor risk for repaying a loan. If you accept this loan or card you will probably pay thousands (if not tens of thousands) of dollars more over the life of the loan due to the higher interest rate. This puts you at risk for late or missed payments down the road which will keep your credit score bottomed-out instead of building it up.
  5. You are considering bankruptcy. If you are considering bankruptcy then you are probably feeling so desperate about your financial and credit situation that you are considering never paying back your creditors. At that point, your credit has hit the bottom and will stay there for 7-10 years if you claim bankruptcy or even forever for unpaid tax liens or unpaid student loans (unless they are paid). I would urge you to consider getting professional help from a non-profit debt management and credit counseling service to help you pay back your debts and restore your credit at the same time. Then, use a professional credit repair service to help uncover any other ways your credit report and score can be improved.
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