A person’s credit score might be one of the most important financial aspects that they have in their lives since the credit score is used to determine a person’s credit worthiness. It will determine the interest rates that are paid on credit cards, automobile loans and home mortgages. The credit score is also used in many situations to determine the cost for car insurance. For these reasons, individuals aspire to keep their credit score as high as possible. These are some of the mistakes that people make which will lower their credit scores, making their personal interest rates and insurance costs increase.
Paying bills late
One of the most important factors in determining an individual’s credit score is their past payment history. Making late payments will lower your credit score and can have a continuing impact on it for up to seven years. The more payments that are made late, the more your credit score will fall. Making a payment just a few days late will not have a huge impact on the credit score, but as the days stretch into months late making the payment, the credit score will definitely take a huge hit.
Maintaining a high debt to credit ratio
A large portion of a person’s credit score is based on their debt to credit ratio. For this reason, maintaining a debt to credit ratio of more than thirty percent will cause a person’s credit score to drop. The largest drop in one’s credit score as a result of this action would be having all of the credit cards at or very close to their maximum credit limit.
Closing credit cards that have been paid off
Most people think that there is no point in keeping credit cards that they’ve paid off. Closing those cards that have been paid off will cause the credit score to go down because it will make the debt to credit ratio higher. Additionally, not using the credit cards that have been paid off on a regular basis can affect your credit score as well since dormant credit cards will fall off of an individual’s credit report two years after the last time that they were used.
Allow vehicles to get repossessed
The result of not paying on installment loans for vehicles for an extended period of time means that the vehicle will eventually be repossessed. Not only will this mean the loss of the vehicle, it will also put a huge hit on your credit score. The effect of having a vehicle repossessed can remain on your credit report for a maximum of seven years. This will make it virtually impossible to get approved for new credit for a long period of time.
Home foreclosure
Not paying the mortgage payment for months and months on end will result in you being evicted from your own home. Not only will you no longer have a roof over your head, you will also experience a credit blow so immense that you won’t be able to buy another home for years to come and you might even find it difficult to find a landlord that will be willing to rent to you as a result of your bad credit.
File bankruptcy
Many people will resort to filing bankruptcy when they feel like they’ve gotten themselves in a hole that they cannot get out of. This might erase all of the debt that you’ve had in the past, but it also means that you will not be able to get any new credit for several years to come. Filing bankruptcy is the quickest method that a person can use to lower their credit score.
While it is not easy for people to work on improving their credit score in a short period of time, it is easy to try to avoid actions that will take the credit score even lower. When attempting to improve the health of your credit score, try not to fall into any of the above credit mistakes that will further harm your credit.