People are slapped with bad credit ratings for several reasons. In many cases, it's through no fault of their own. As an example, you might get a bad credit score just because someone at the credit bureau itself mistakenly entered inaccurate data. It may also be that you have a very common name, for example, and someone sharing your name defaulted on a loan, went into bankruptcy, or had some other financial hardship situation, and that person's information got entered in your credit report. Other situations include a recent move, where a credit card bill got lost in the mail and you forgot to pay it. Although this can be expensive, it's an honest mistake. Certainly, it should not so adversely affect your credit report.

The thing to remember is when you have a bad credit rating, don't think that you are forever barred from access to financial services when you need them. A bad credit situation is one of those "life events" that can be rectified immediately with due diligence on your part. But be warned: people who consistently earn bad credit ratings should not think that there is a quick fix because there isn't. They should instead seek credit counseling to "rehabilitate" their credit behavior.

In fact, bad credit is so common that the US Trustee Program of the Department Of Justice has approved use of credit counseling agencies so that these agencies can assist people who have credit difficulties. Their web site is at: www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm. There, you can find a list of credit counseling agencies available in your area, along with contact information, so that you can find the proper assistance.

Why Does Bad Credit Exist? In many cases, of course, the reasons you have bad credit are completely under your control. Among them are compulsive shopping, overspending, living beyond your means, et cetera. However, in many cases, you cannot control the reasons bad credit have happened to you, such as when personnel at the credit bureaus incorrectly enter your personal information. If you correct errors made in these types of situations, your credit rating will be restored quite easily and quickly.

Of course, other reasons you have bad credit include being laid off from your job, which is becoming increasingly common in today's job environment. This in turn will affect how and when you can pay your bills, so if you've been responsible previously, suddenly having substantially reduced or no income can greatly affect just how responsible you can be with your bills.

Another reason would be home foreclosures - this shouldn't come as a surprise given the tremendous number of people who have lost their homes this year owing to rising interest rates. During the boom period of real estate, people felt encouraged to purchase houses at incredibly low rates and then when interest rates started to climb, many first time homeowners could not meet mortgage payments;

divorce is another popular reason for credit problems - credit counselors say that this is one of the more common reasons for earning a bad credit rating. When assets have to be divided up between husband and wife and there are alimony and child support payments looming in the horizon, money becomes scarce;

failing health can ruin a lot of credit ratings - people who fall ill unexpectedly or are suddenly suffering from a disability will not be able to continue working. We see here a domino effect: loss of health = loss of job = loss of earning potential = limited cash

Finally, over-stretching one's credit limits can do the most damage- it amazes us how people's wallets are overflowing with plastic. Instead of keeping one or two credit cards, they have 10! In addition to the usual cards like MasterCard, Visa, Diner's and American Express, they also have credit cards from department stores, gas stations, and other retailers. When one card is maxed out, they simply use the next one.

Avoiding Bad Credit Here's the golden rule on bad credit: before making any major purchases, request for a free copy of your credit report from Equifax or Trans Union. When you read something that you believe is false or inaccurate in the report, write a letter immediately and ask for proof or ask that the report be corrected immediately. Whatever you say to the credit bureau should be executed in writing. This is the only way you can show proof that you acted in good faith. Don't wait for weeks before questioning your credit report.

If you want to repair your bad credit and restore and then maintain your healthy credit rating, you should:

Take stock of your financial situation - jot down all sources of your income and how you're going to spend that income. Create a budget and stick to it. Discipline in spending works in your favor - banks are more predisposed to lending money to individuals who exhibit prudence;

Really understand what you NEED to spend money on. We are a nation of excess. Frivolous expenses must be avoided while trying to repair your credit rating.

When you pay off credit card debt, you want to pay the highest interest rate credit card off first. In order to do this, you need to make the minimum payments on all of your other cards, and then apply the rest of your money to the highest interest rate credit card you have. Do this each month until the highest rate credit card is paid off, and then move on down to the next highest interest rate credit card. Make minimum payments on all of your other cards, and then take the balance of your allotment and put it all on the highest interest rate credit card you have. Continue doing this until all of your credit cards are paid off. This should happen relatively quickly, as long as you practice discipline and diligence.

Finally, the last way to make sure your credit rating will be restored is to pay your bills on time -- all of them. Mortgage, utility, tax payments, and other bill payments made on time show creditors that you are prudent and diligent in your spending practices, which will reflect positively on your report. So if you've found yourself with bad credit, don't worry. If you take some time to pay bills on time, pay off credit card debt as described above, and remain prudent in your spending, you'll be back to good standing in very little time.