Good credit is more that just a nice thing to have; it’s essential if you are buying a home. Unfortunately, some people don’t consider the fallout of poor credit or how long the effects can last (Which is years!) Fortunately, there are steps you can take to clean up damaged credit, but in this blog post we are going to look at five ways you can seriously damage your score. Keep in mind that you need to have a history of some kind of credit to even have a score – it’s not something that is issued, like a social security card. So start with something small, perhaps an American express that you use to pay for gas and pay it off in its entirety every month. Otherwise, if you have various forms of credit, take a close look at your three reporting agencies to make sure everything is correct and up to date. These aren’t the only things that can harm your score, but they are a good scope of things to begin to look at.
Five Things That Seriously Harm Your Credit Score
- Paying Things Late (Delinquencies)
- Having An Account Sent To Collections
- Defaulting On A Loan
- Filinf Bankruptcy
About 35% of your credit score is composed of the timeliness of your payments – meaning, if you pay your payment by the date it is due. This is a high factor for credit. One late payment may not trip you up badly, but multiple ones, particularly consecutive ones, will. One way to assure you aren’t late is to set up automatic deduction from your bank account. Only do this if you are sure the money will be there, because if not, you will face penalties and fees from not having adequate funds.
When a lender just gives up on you paying and sends you to collections, that looks especially bad for your credit. That’s why it is important to pay late payments or iron out disputed payments with lenders in a timely manner.
One of the biggest loans defaulted on are student loans – people just stop paying them, without trying to work out a payment plan or having them deferred. This is unfortunate becuase a lot of the time, if you truly are low-income, your student loans will qualify to be deferred for a set amount of time without harming your credit in any way – you just have to communicate with your lender! If you defualt on a vehicle loan, the default will be on your credit report and the vehicle will likely be reposessed – both extremely hard things to bounce back from. Don’t buy vehicles you can’t afford, and sell expensive vehicles if you fall on hard times for something more economical.
Foreclosure of a home is another nasty mark – it means you defaulted on the loan of a home and your home was taken from you by the bank. There are many ways to avoid this, including selling the home and short-selling the home if need be. Anything is better than foreclosure. Contact an experienced real estate agent to discuss your options before it comes to this.
Sometimes, if you have a lot of unsecured debt, such as very high credit card debt amounts, bankruptcy becomes your only viable option. The best scenario is to never get into this situation – keep all of your credit cards at less than 30% of their maximum debt, and pay more than the minumum every month. Bankruptcy stays on your credit report for years and can harm your credit score, so do everything in your power to solve your financial problems before it gets to bankruptcy.
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