Four Myths About Bad Credit

Bad Credit MythsBad credit gets a bad rap — and for good reason. It only takes a few serious mistakes to destroy your credit score; and while a credit score can drop rapidly, it can take years to repair the damage. In the meantime, a low score can stop certain job opportunities and result in higher insurance premiums.

It’s a bad situation to be in, but bad credit is not the end of the world. There are several untruths regarding bad credit, and it’s these myths that discourage some people from improving their credit history. They either feel that it’s too hard, or that their efforts won’t matter.

However, by distinguishing truth from fiction, you might find the motivation to fix your credit. Here are four common myths about bad credit.

1. You can’t buy a house

A good credit score can help you qualify for a mortgage loan and a good interest rate. However, a low credit score doesn’t always ruin the chances of finding a home loan. You might not qualify for conventional financing with a score under 680, but you may qualify for a home loan insured by the Federal Housing Administration (FHA), which only requires a minimum credit score between 580 and 620, depending on the lender.

Understand, however, that even if you’re approved for financing, you’ll pay a higher interest rate and the lender may require a higher down payment.

2. You can’t get auto financing

Everyone needs a car, but if you have bad credit, you may believe that paying cash is the only way to get a new set of wheels. This is not true. There are subprime auto finance companies that offer indirect financing, which might be your best bet when buying a car with bad credit.  There are lenders like Consumer Portfolio Services that have certain programs for those with bad credit. Getting auto financing might be easier than you realize, regardless of your credit.

3. Everyone will know about a bankruptcy

Although a bankruptcy is public record, you shouldn’t overly stress about friends or relatives discovering that you filed for protection. Unless these individuals have reason to snoop around court records looking for your name, chances are that they’ll never stumble upon this information. Therefore, you can file Chapter 7 or Chapter 13 bankruptcy and feel confident that your information will remain private.

Also, there’s a myth that bankruptcy destroys any chances of getting a loan. Although a bankruptcy will reduce your credit score, most people fully recover credit-wise within 2 to 3 years, at which time they can purchase cars or homes with a reasonable interest rate.

4. You’ll only qualify for a high-rate credit card

Getting a credit card after a bankruptcy or another credit mishap is one of the best ways to rebuild your credit history. But there is a myth that bad credit results in a high-rate credit card. This is possible. However, many banks offer secured credit cards that feature low, competitive rates.

To get these cards, you need to pay a security deposit between $200 and $500, depending on the bank. Also, there are other fees, such as an annual fee, a monthly maintenance fee and a setup fee. Since these fees are charged directly to the card, you’ll incur a balance before making the first purchase with the card. It’s not the best terms, but since these creditors report to the credit bureaus, a secured credit card helps repair your credit history.

Even if you’re ashamed or embarrassed about a bad credit score, know that it is possible to improve your rating and demonstrate  creditworthiness. You might deal with slow approvals and high interest rates today, but once your score improves, bank will consider you a desirable loan applicant.


Image via BookMama

Written By
Sydney White is a Texas-born stay at home mom who enjoys spending time with her family, bargain hunting and, hiking.


  1. I check out around that I can file chapter 13 bankruptcy myself. After doing a look for Filing Bankruptcy, it all appears so intense. Appearantly, I assume I have to work with a legal representative if I am thinking about filing chapter 7 bankruptcy. Thanks. Walthers

  2. Bankruptcies can often make it easier to qualify for loans if you have a poor score. A borrower with a bankruptcy is ineligible to seek relief from the courts for another ten years. This poses a better risk profile than someone with a slightly higher score, but no bankruptcy.

  3. the thing to remember about credit is (as you mentioned) – it is not the end of the world. Credit CAN be repaired. Time to pull up your big boy (or girl) pants and make it happen. Wow, that’s the second post today I used that phrase….. 🙂

  4. Your credit score is just one factor in a number of financing decisions like buying a home or a car, and if you can explain your situation or have many other positives on your side, then a lender may be willing to give leeway on the bad credit.

  5. Although I’ve never checked my credit score myself, I must have a pretty good rating because we have always got pretty low mortgage rates. Surprising, since we accumulated so much consumer debt. Currently we have 3 (part of a step program) and they are between 2.5% and 2.89%. However, the one at 2.89% comes up for renewal next March. I want to renew early, so I plan to get my credit score so I am armed with good information for negotiation.

  6. We bought our house at the age of 20, and we didn’t have good credit at all since we were so young and didn’t really have a lot of time to build our credit score. We didn’t get a horrible interest rate, but I knew we could have done better if we would have had a better score.

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