5 Factors that Can Destroy Your Credit Score

Introduction

Understanding the Importance of Credit Reports and Scores

Credit scores  play an very important role in our lives today. A credit score is a three-digit number that determines how credit worthy to lenders. The higher your score, the better your chances of getting approved for loans, credit cards, mortgages and other forms of financing. 

Your credit score is based on your credit report. Your credit report is a financial report card that shows how well your have managed debt over time. It has information such as payment history, outstanding debts, length of credit history, new accounts opened and other things that can affect your overall score. Every lender has its own threshold for what it considers a “good” score.

The Importance of Maintaining Good Credit Score

Having and keeping a good credit score is important for a few reasons. First, it allows you to be approved for different type of loans with lower interest rates. A good credit score show lenders (eg. banks)  that you’re responsible with money and more likely to pay back what you owe. Also having good credit score can impact other areas of life such as renting a housing or even job opportunities, because some employers may request permission to review job applicants’ credit report.

Factors that can negatively affect your credit report

• Late payments and missed payments
  Late payments and missed payments are some of the most significant factors that can negatively affect your credit report. Payment history accounts for approximately 35% of your FICO credit score and they can stay on your credit report up tp 7 years. Thats a very long time.  If you are always late making payments, you will be view you as a higher risk borrower. 
• High credit card balances
  Your credit utilization ratio, which is the amount of available credit you’ve used, plays a significant role in determining your FICO credit score. It accounts for about 30% of your total score, making it another essential factor that can negatively affect your credit report if not managed properly.If you consistently carry high balances on your card(s), this will raise red flags with potential lenders since they see this as a sign that you may be living beyond your means. Ideally, keep your balance below 30% of the card’s limit; this is viewed positively by lenders. 
• Defaulting on loans or declaring bankruptcy
  Defaulting on loans or declaring bankruptcy is the most extreme way to negatively affect your credit report. Bankruptcy stays on your credit report for up to 10 years, and defaulting on a loan
  can stay there for seven years. The effects of these negative marks are long-lasting and can make it difficult to obtain new loans or credit cards. If you find yourself struggling to make payments, consider alternatives such as debt counseling or negotiating with creditors for a payment plan that works within your budget. 
• Applying for too much new credit at once
  Applying for too much new credit at once can have a negative impact on your credit score since every time you apply, creditors run an inquiry into your credit report. Too many inquiries over a short period can signal potential lenders that you may be financially unstable, which will reduce your chances of obtaining future loans. 
• Errors on your credit report
  It is not uncommon for errors to show on your credit report, from misspelled names to wrong information about payments or defaults. These errors can affect your credit score and make it hard to get new loans or lines of credit. To dispute errors with reporting agencies, contact each agency (Equifax, Experian and TransUnion) directly with the error(s) noted in writing along with evidence supporting the correction.

  They will contact you within 30 days. If the dispute,  is not resolved to your satisfaction, then contact a Credit Report lawyer to help with your dispute.
  

Conclusion

A credit score is a crucial factor in determining your eligibility for a loan or credit card. Your credit report reflects your financial history and gives lenders an insight into your ability to manage money responsibly. Late or missed payments, high balances on credit cards, defaulting on loans or declaring bankruptcy, applying for too much new credit at once, and errors on your report can negatively impact your score.

To maintain a healthy credit score, it’s essential to pay bills on time and keep balances low. If you’re struggling with debt, consider seeking help from a financial advisor who can guide you through the process of managing finances effectively.

Make sure always to check your credit report regularly to catch any errors that may be affecting it. While negative factors like late payments or high balances can impact your credit score adversely, there are steps you can take to mitigate the effects.

With careful attention and good money management habits, you can maintain a healthy score and secure better access to loans in the future. Remember always to review the terms of any loan application carefully before signing up so that you have all the information necessary to make an informed decision about whether it’s right for you.