Whether buying a new home, a car or getting involved in any other financial matter, one of the first things that determine a person’s credibility is their credit score.
People with exceptional credit scores are more likely to be accepted for loans, as it takes persistent effort and good decisions to build a significant credit score.
There are a number of things that can adversely affect one’s credit score. Below are a few credit-related mistakes people commit that negatively affect their credit score.
1. Withholding Payments
Consistent delays in the payment of monthly credit bills are one of the top causes of low credit score. Timely payment is one of the main requirements to maintain strong credit.
2. Collection Status
Creditors approach a mediating debt collector when they feel strongly that they won’t be repaid. The account is charged off in such situations and placed on a collection status. This collection status is a major setback to a person’s credit score.
3. Charged Off Accounts
The option of a charge off is also used by creditors in cases when the respective credit card holder fails to pay the amount he has charged. “Charged off” status can greatly lower a credit score.
4. Outstanding Loans
A nonpayment or loan default resembles the “charged off” status. A loan default signifies a person’s inability to make payments and a nonfulfillment from the borrower’s part of the deal, which has a detrimental effect on their credit score.
5. Filing for Bankruptcy
Bankruptcy is one of the worst things that can happen to your credit score. Instead of directly filing for bankruptcy, a person should look for less harmful options to save their credit score. One such option is consumer credit counseling.
6. Home Foreclosure
The delayed payments of a mortgage can result in the lender’s intervention to foreclose the house, which causes even more delayed payments, followed by a considerably decreased credit score. This makes it more difficult for the borrower to apply for further loans.
7. Legal Intervention
An irregular credit history because of delayed and failed repayments can result in legal intervention. This shows that a person has been inconsistent with his commitments and therefore reduces the credit score.
8. 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.
9. 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.
10. 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.