Types of Bad Credit

There are two types of bad credit – situational bad credit and habitual bad credit – and they are looked upon differently by lenders.

Situational bad credit is usually caused by a life-altering incident such as a divorce, job loss, or health issue. In this instance, a person with generally good credit suddenly falls behind on their bills, causing their credit score to drop.

Habitual bad credit is just what the name implies – a person who rarely pays their bills on time, ever.

Individuals with both types of bad credit could have the same credit score, but a subprime lender will look more favorably on the person with situational bad credit since they've exhibited good credit habits in the past.