How you manage your credit and other financial accounts comprises your credit history and is recorded as your credit report. It contains the details of that history and is used to calculate your credit score. The higher your score the better your opportunities to secure the credit you need and to be offered the best money-saving terms. Your credit score measures the risk of repaying loans with the best scores potentially saving you thousands of dollars in interest and fees; while a poor score may mean no credit opportunities at all. The entries in your credit report are the keys to which way the credit score pendulum swings. This is why it’s important to know what’s in your report and how you can affect the outcome. While age, ethnicity and marital status have no impact, negative actions that are recorded can lower your score making it difficult to get the credit you want or need. Here are the most damaging behaviors that need to be avoided to keep your credit score in a healthy range.
Bankruptcy Your credit scores will plummet by 130-240 points following a bankruptcy and be detrimental to your future credit needs for many years to come with a bankruptcy remaining on your credit report for up to 10 years. The drop will be significant enough that you will be considered a high-risk customer by most lending institutions. You may still get extended credit, but at a high interest rate and with unfavorable terms. Missed and Late Payments Walking away from a legitimate debt or habitually making late payments are at the top of the list of negatives for many lenders. The biggest dent in your credit report will occur if you are late on a mortgage payment. The damage ranges from 40 to 160 points, depending on how long overdue. A delinquent mortgage that resolves in a short sale, deed in lieu or a foreclosure will shave off another 85 to 160 points.
Financial experts suggest that no more than forty percent of your allowable credit be used to protect your credit score from taking a dive. Those reviewing your credit report may perceive using too much credit, in respect to your limit, as a sign of financial difficulty. Opening Multiple New Accounts Opening or closing accounts can drop your credit score by dozens of points, particularly for consumers with old credit — credit cards held for a long time, 15 years old or more. Shopping for a loan that requires multiple lenders to check your credit report can mean a 20-40 point drop in your score.
No or Limited History
What may surprise many people is that not owing any money doesn’t improve one’s credit score. In fact, a lack of a recent history will actually lower it. Without any debt, there is no way to determine your probability of making late or missing payments.
Failing to Review Credit Reports
No one knows better whether the items listed on your credit reports are legitimate than you. Check your credit reports from each of the three big credit reporting agencies throughout the year. It’s important to make sure they are error-free with no bogus information or someone trying to steal from you. If you neglect checking for errors, you stand the risk of being a victim of identity theft. You can get a free copy from each bureau every twelve months at annualcreditreport.com or by calling 877-322-8228. Most employers, landlords, insurance companies and others requesting to see your credit report aren’t so much looking for scores in the 700+ range or relying solely on the score but more interest in seeing how well you manager your finances overall. But, if you’re someone who is serially insolvent and walks away from numerous debts, you won’t be met with a loan agreement and a handshake, for the truth is that their business depends on having responsible clients. There are no secrets or special steps to earning a good credit score. Along with observing the above suggestions, paying your bills on time and not taking on too much debt will go a long way to help raise or maintain an excellent score.
Noreen Ruth writes for a credit news blog and several popular finance websites. She is interested in educating consumers about using credit responsibly and about legislative action that will affect their ability to borrow the money they need. She has contributed hundreds of articles to various online sites that provide content to inform consumers on credit cards, debt relief services, loans and other finance related topics. Read additional articles she has written and follow more of her regular posts on the asapcreditcard blog.