Strange titles usually lead to even stranger stories, but hopefully not this time. Bad credit and home ownership are an oxymoron. If not yet in your case, it will be very soon. Before you react and email your thoughts to me, let's look at the causes of bad credit and some of the surprising things that can happen to you.

If I were to take a poll, the number one answer to the question “What causes bad credit?” would be late payments. To some degree this is correct, but in many cases it isn't.

In fact, the old thoughts you have about bad credit should be expunged from your mind, as most of them aren't as true as they use to be. Other causes of bad credit are collections, judgments, bankruptcies, foreclosures, charge offs, tax liens etc. And would you believe that too much credit (even if the payments are on time) -- too many open, but unused accounts and too many accounts with balances too close to the high credit limit should be added to the list? They can cause a lower credit score as easily as the public records I cited.

Credit is an unusual indicator because it is fluid. Most people will tell me their thoughts on their credit and be fairly close, but others will be way off. In this modern world, we have modern problems such as identity theft, transposed numbers, similar names and simple incompetence, all that can change your credit dramatically. Many years ago, I myself had my social security number changed, accidentally by my accountant, which caused havoc for years, especially with the IRS. A client of mine just traded in his car and bought another one from a reputable dealer but found out that the dealer forgot to pay off his trade. The car was reposed and my client’s credit score fell dramatically. It is still being rectified.

We as a nation have moved to credit scoring, which is a problem unto itself. The way we in the mortgage industry use credit scoring is to have three credit bureaus send their score for the borrowers, and we take the middle score of the three. I do not wish to get into a discussion about credit scoring now, but I will simply say it is something we have to live with and we do our best to make sure it is correct.

Now let's look at the reality of the above-mentioned problems and see if you can find a ray of sunshine in my explanations. I will start by stating that great credit is a score over 700, good credit is 680 or higher, okay credit is 620 or above, poor credit is around 565 and above, bad credit is at 500 and up, and below 500 is a problem.

DO NOT BEAT YOURSELF UP OVER MY GRADING SYSTEM. JUST TAKE STEPS TO IMPROVE YOUR SITUATION.

The major mistake most people make is accepting a 30-day late because you were assessed a late payment. Late payment assessments come generally between 10 and 15 days after the due date, but a 30-day late is 30 days after the due date. If you have any on your credit report and you weren't actually 30 days late making the payment, challenge it and get it off.

A current 30-day late can cause you up to 100 point drop in your credit score! Continued...