8 Things That Cause a Bad Credit Score
Your credit score is important. It determines how much credit lenders are willing to grant. Knowledge of the causes of a poor rating can help you to avoid the pitfalls that can take years to correct. A bad credit score is caused by several key elements as listed below.
- Late payments
- Your credit history accounts for thirty-five percent of your credit score. Make your credit card payments on time to keep your credit score from decreasing.
- Defaulting on payments
- If you don’t pay your credit card bills, a bad credit score is assured. Additionally, your unpaid accounts will be inevitably charged off after a few months.
- A charge off
- Your accounts become charged off when a creditor sees that you do not intend to make payments on the balances. An account in charge off status is extremely harmful to your score.
- Collection Accounts
- Creditors can hire or sell your delinquent debt to third-party debt collectors to try to obtain a payment from you. This is often the step they take prior to charging off your account. Collection agencies can use questionable methods to make you pay including threats of lawsuits, calling your place of employment or even family members. Read about your rights to see what collectors cannot do at FTC.gov.
- Defaulting on a loan
- Defaulting on a loan affects your score in much the same way as a charge off. It is a statement to any prospective finance company that you are a credit risk.
- Filing bankruptcy
- Bankruptcy is the most harmful to your credit score. It is the option of last resort.
- Foreclosure has the same effect on your credit as a loan default. It sends a message to lenders that you are a high credit risk and shows a history of not being able to keep your payments current. Losing your home is very likely to result in a bad credit score because all late and missed payments are shown on your report.
- An unpaid judgment is much worse than a paid judgment. Creditors look at judgments because they show creditors that the court system had to force you to pay your debt.