The Bad Credit Trap

"This is a trap most consumers will never get out of. The system won't allow them to naturally recover.

In my career, I have heard thousands of clients tell me how good their credit was before it went bad. But I have never had even one client with good credit tell me their credit was bad and it magically got better.

Most with bad credit never recover. That is a fact. And the reason is that the system is against them from the start. Consumers with credit issues are not in their situations because they are bad people. They are sucked into a trap that most simply don't know how to recover from.

Credit problems usually stem from an uncontrollable event. Some have a car crash or medical issue that compiles medical bills. Many others go through divorce or have credit too young, leading to issues where a default or late payment occurs.

There are thousands of reasons things happen, but let's just say life happens. And when life happens, and even one account gets paid late, a downward credit spiral then begins. Even if the late payment was for one credit card, most other card companies will claim their risk is higher.

Several things start to happen at this point. First, many creditors will lower their limits. If a creditor lowers the high credit limit on an account, the credit score always goes down. This is due to 1/3 of your credit score being based on your Available Credit.

Now the consumer has less available credit, right when they obviously need it. Plus, with lower available credit, they will face more overdraft fees. And the credit scores drop and risk increases for all other accounts, due to the lower score.

Now creditors will start to increase interest rates due to the increased risk. Not all creditors can do this, but in the fine print, many reserve the right to do just that. The higher rates mean the payments also increase. The consumer is now faced with higher payments on several of their accounts, not to mention having to pay their original late fees.

Eventually, this leads to many consumers going late on other payments. Then things start to get really bad, really fast. In a very short period of time, credit that once was good is now left destroyed.

This means all new credit the consumer applies for will only be approved at high risk rates. This costs hundreds more dollars every month and radically deteriorates the consumer's quality of life, for many years to come.

Most consumers then continue to struggle all their life with this cycle. The high interest rates and payments leave them living paycheck-to-paycheck. And they commonly go late on their payments after that, as they struggle to pay outlandishly high interest rates and payments.

This is the Bad Credit Cycle. Many times, it starts with one unavoidable late payment. But in the end, it costs most any chance of having a healthy financial future."

Herman Dolce, Jr.- Start Up