If you are thinking of entering into a financial agreement in the future, be it anything from a mortgage to a payday loan, the first thing you probably think of is your credit score. This one little number can change the terms of a loan dramatically. A credit score can influence how much money you can borrow and will influence the decision on whether or not a lender agrees to work with you. To increase your chances of getting approved for a loan (including one with a decent interest rate), it’s important to know your credit score and to be aware of things you might be doing to damage it. Here are a few things to keep in mind when trying to keep a good credit score:
- Financial payment history accounts for a sizable chunk of your credit, so consistently being late on credit card payments does perhaps the most damage to your score. Not paying at all, however, is much worse.
- When creditors get the impression that you will never pay your credit card bills, they will charge off the account. This inflicts heavy damage to your credit score.
- Often, at some point either before or after charging an account off, creditors will send it to a third-party debt collecting agency. Having an account in collection status looks very bad.
- Loan defaults trigger a similar reaction to credit card charge-offs.
- Filing bankruptcy will decimate your credit score. Be sure to explore all your options, such as consumer credit counseling, before going through with it.
- Getting behind on the mortgage means late payments and possibly foreclosure. The negative effect on your credit may make it extremely difficult to be approved for mortgage loans in the future.
- If you have ever been brought to court over unpaid debt, this will certainly hurt your score. Still, a paid judgment looks better than an unpaid one.
- Having credit card balances that are high in relation to your credit limit will decrease your credit score as long as it remains that way. Maxed out credit card accounts are even worse.
- If you have only one type of credit account, be it loans or cards, it could negatively influence your score – especially if that is the only credit information in your history. It is important to have a mix.
- Closing credit cards will usually have a negative effect on your credit score. If they still have a balance when you close them, your credit limit will drop to zero, making it look like you’ve maxed it out. Similarly, closing cards with available credit while you have some with balances will increase the amount of credit you have utilized and decrease your score.
- Length of credit history is important too, so getting rid of old cards makes your credit history seem shorter than it really is.
