9 Things That Can Hurt Your Credit Score
Whether buying a new home, a car or other type of purchase, one of the first things that lenders review is the borrower's credit score. People with good credit scores are more likely to be approved for loans, as it takes persistent effort and good decisions to build a good credit score.
There are a number of things that can adversely affect one’s credit score. Below are a few credit-related mistakes people make that negatively affect their credit score.
1. Late Payments
Not paying your loans when they are due can definitely hurt your credit score. Even if you can only afford to pay the minimum, be sure to make the payment on time.
2. Collection Status
Creditors will use a debt collector when they feel strongly that they won’t be repaid. Having accounts that are being collected on will be reported to the bureaus and can have a negative impact on your score.
3. Charged Off Accounts
When collection efforts have been exhausted, a lender may choose to take the financial hit on the account not being paid in full and "charge it off". Having credit accounts in“charged off” status can greatly lower a credit score.
4. Defaulting on a Loan
This is very similar to a "charged off" status for a loan or credit card, and indicates that the loan was not paid in full, which has a detrimental effect on your credit score.
5. Filing for Bankruptcy
Bankruptcy can be one of the worst things that can happen to your credit score. Before making that decision, talk to your creditors and explain your situation. Many will be open to working with you. Credit counseling is also another good alternative to bankruptcy.
6. Home Foreclosure
If your mortgage loan gets delinquent to the point, that the lender proceeds to foreclose, that can be devastating for you, your family and your credit score. Plus, it can make obtaining another home loan in the future even more difficult.
7. Escalated Credit Card Balance
Along with delayed payments, this is one of the main causes of credit score reduction. Building a high credit card balance, or a balance at or near your credit limit, can affect your credit score.
8. Closing Old Cards
Closing old credit cards may have a detrimental effect on credit score because older cards signify that a person has a considerable credit history. Consider leaving your most established credit lines open even after you've paid them off.
9. Applying for Multiple Loans and Cards
Credit inquiries account for about 10% of a person’s credit score. So applying for many loans and credit cards within a limited period can result in a reduced credit score. Make sure to apply for a credit card or a loan only when necessary.
Remember that you are entitled to a free copy of your credit report once a year from each of the three credit bureaus. And while the report is free, you may have to pay a small fee to receive your score along with the report, so please be sure to review each credit bureau's program carefully.
