Your credit score is very important. That three-digit number could decide whether or not you get a house, a car, or sometimes even a job. It’s how potential lenders decide whether or not you’d be credit-worthy. Here, you’ll find out a few things that will negatively influence your score, and what you can do to prevent them.
Always, always try to pay your bills on time. 35% of your FICO score is your bill payment history, and consistently being late with payments will bring your score down. The only thing that’s worse than paying late, is not paying at all. Not paying on time will also result in late fees and other assessments by your credit card company. Paying on time, month after month, will not only keep your score from declining, but may improve it. Not paying for months on end will probably result in your account being charged off, and possibly sent to a collection agency.
Having an account sent to collections is very damaging to your credit score, and also to your future chances of getting credit, because it shows lenders and credit card companies that you don’t fulfill your end of the contract. Paying your bills on time will save a lot of money and stress in the future.
Having your home go into foreclosure is also a crushing blow to your FICO score. Most homeowners that fall behind end up going through it. Foreclosure hurts your score, and makes lenders afraid to lend money to you at all. Bankruptcy is the “kiss of death” for a credit score. Try alternative strategies, like seeking credit counseling, before deciding to file for bankruptcy. Getting a judgment is really bad, too. A judgment shows lenders and creditors that you not only didn’t pay your bills, the court was forced to get involved to make you pay off the debt. Judgments hurt your score, but a paid judgment is better than an unpaid one.
High credit card balances and maxed-out credit cards are also something to avoid. Carrying a high balance in relation to your credit limit, brings up your percentage of credit utilization and brings down your score. Maxing out a card will increase your credit utilization to 100%, which is probably one of the least ideal things you can do for your credit score.
Closing an account will also negatively affect your score. When you close a credit card account that still carries a balance, your credit limit goes all the way down to $0 while your balance remains. This basically has the same effect as maxing out a card- causing your score to go down. Conversely, if you have one or more cards without a balance, closing them will increase your credit utilization.
Applying for many credit cards will definitely damage your FICO score. Multiple inquiries into your credit history within a short period of time will cause your score to drop. To avoid it, try to keep applications to a minimum.
Credit scores affect many parts of our lives, and it’s important to do everything you possibly can to not only keep your score from going down, but to bring it up as well.