Bad credit is a term used to refer to the state of having a credit score or credit history that is ranked fairly low on any of a number of scales. Bad credit can impact one’s ability to receive loans or certain services, or can result in much higher interest rates when receiving credit.

A person’s credit history is kept by a credit bureau, which keeps a collection of everything that person has done that might impact their credit, from other lines of credit they have, to credit score requests, to bankruptcy. The credit bureau then builds a credit score of some sort based on this information, which can be accessed by lending organizations which are considering extending a line of credit to a person. If that person has good credit, the line of credit will likely be extended; if they have bad credit they may have to either suffer through less than ideal terms or else not receive the credit line.

Having bad credit can be the result of any number of things. Often a bad credit score is not the result of any overtly bad behavior, such as defaulting on loans, but simply because the borrower has met certain criteria that make them look like a credit risk. For example, a borrower who has kept a relatively high proportion of their credit filled with debt for extended periods of time may have bad credit, even if they never miss a payment. This is because many lenders see a high debt-to-credit ratio as indicative of a person living beyond their means, and they fear a default if anything should interrupt their income or change their life. Generally, payments shouldn’t be more than about 15% of total income, and debt shouldn’t be more than a third of total credit. If either of these numbers is exceeded, a person may be on the road to a bad credit score.

Of course, one of the biggest causes of bad credit is simply a delinquency. When you miss a payment to a credit card or other debt, that company might send that information in to a credit agency. This delinquency can negatively your credit a fair bit, but usually a single late payment or two will have a short effect on the score, and within six months it will no longer contribute to bad credit. Accounts that you have defaulted on, however, where you actually refuse to make a payment for a long time, so that the lender decides you’re never going to pay, can affect your credit rating enormously. In addition to possible legal action, defaults can remain on your credit report for many years, leading to bad credit for nearly a decade.

Bankruptcy can also cause bad credit, as a bankruptcy will remain on your credit report for many years. For some people, however, bankruptcy can actually be a way to help repair bad credit, if they are so deep in debt that they are constantly delinquent and have a high debt-to-credit ratio. In this case, bankruptcy can be a short-term negative hit to their credit score, but in the long term will free them from delinquencies and high debts.