Have you ever had a dream where you saw your credit score plummet to a record low? If this was a dream bad enough for you to have broken your sleep, then you probably know how important a number your credit score is. Many people like to define credit score as the measure of one's financial responsibility. This exhibits how crucial it is to carefully monitor your credit score. Read on to know if you are one among the thousands of people out there who are hurting their credit score knowingly or unknowingly.
- Late payment: The most common reason which lowers the credit score is late payment. If you are unable to make repayments within the stipulated time, your creditor will charge you a late fee and they often increase your interest rate to the default rate.
- Unable to make payments: Not making your credit card payments would sound the death-knell for your credit score. Ultimately, there is even a risk of your account being charged off completely.
- Your account is charged off: It does not get worse than this for your credit score. If the creditors are assured that you are not going to clear your credit card payments at all, they charge off your account.
- Your account is sent to collections: Your creditor can use a third party debt collector to collect your payments. This is done by sending your account to collections and that would mean that the creditor now has no hope of you making your payments and so he has hired someone else to do it.
- If you default on a loan: If you have not made agreed upon loan payments to the creditor, then this non-payment record will become a part of your credit history. This credit record is used during the formulation of the credit score of the consumer.
- Bankruptcy filing: Filing for bankruptcy deducts the credit score badly and it stays on your financial history for about seven years, thus making it hard for you to acquire major purchases.
- Late mortgage payments: A late mortgage payment can affect your credit score. It is possible for your credit score to drop up to 100 points with just one missed payment.
- Legal involvement: A judgment indicates a failure to honor a loan agreement and thus lowers your score. Judgments are nasty items to have on your credit report which makes it very difficult to get any loan without massive down payment.
- Huge credit card balance: Try to keep your credit card balance low as a higher balance will cost you credit score points. The more your level of debt, the lower is your credit score.
- Maxed out credit cards: Maxing out your credit card has a negative effect on your credit score. Know the credit limit on each card and aim to use less than 30% of the limit
- Closing old cards which are active: Closing a credit card that still has balance will cause your credit limit to drop to $0. This would make it look as if you have maxed out your credit card which causes your score to drop.
- Not keeping your old cards active: The older your credit history, the better is your credit score. Therefore, keep your old cards active by purchasing something small on it very often.
- Applying for several loans or credit cards: If you make several credit or loan applications within a short period of time, your credit score will drop. Try to keep these applications to a minimum.
Keep these points in mind to ensure you are not making these mistakes. Building a good credit score takes time and you should be patient to reach that magic number!
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