5 Major Threats To One's Credit Score

A person’s credit score is an extremely important tool - especially if the individual wishes to apply for a loan - or wants to get insurance. Maintaining a good credit score is crucial for maintaining a sound financial picture - since this allows the person to apply for loans without encountering too much hassle. Here are the 5 major threats to one’s credit score.

Bankruptcy

A bankruptcy is like a big black eye on a person’s credit report. It tells prospective creditors that you’re unable to honor your promise to pay back your debts and other financial obligations - from utility bills - credit card charges - child support and more. Although it may take a while for a person to rehabilitate his credit score after bankruptcy - the impact of the bankruptcy though dissipates over time. To restore your credit worthiness - you will need to add new trade lines to your report - as well as take on other forms of credit - like a small appliance loan - so that your credit score will not stagnate.

Late - Or Missing Payments

Credit scores generally monitor how a person manages his or her current and past credit obligations and payments. By incurring a number of missed payments and late payments - your credit scores will certainly fall back hard. The habit of continually missing on payments - or making late payments - gives your creditors an indication that you may do the same in the future - and so this greatly reduces your chances of availing loans from creditors in the future. Always ensure that you never miss bill or loan payments - to maintain a high credit score.

Incurring High Credit Card Balances

Whenever a person incurs high balances in their credit cards - their credit scores go down hard too. The classic case of over-utilization of credit cards happens when the individual runs out their balance - or goes over their credit limits - and only pays the minimum amount each month to avoid further financial problems. Always make it a habit to use your credit cards only when required - and always settle your balances as soon as possible.

Settling With Former Creditors For A Lower Amount

Whenever a person settles his or her former debt with a former creditor at a much lesser amount - this actually does more damage to your credit score. Because you’ve settled with your former creditor for an amount less than what you actually owe them - the creditor eventually reports the remaining balance which you weren’t able to pay - to the credit reporting agencies - and this will get noted in your credit report as a “deficiency balance”. If you have debts with former creditors - make sure that you work out a full settlement with them - and guarantee that what’s accomplished between you and your creditor does not get reported elsewhere.

Not Having a Credit Score

According to credit experts - many people today still don’t have their own credit score. However - if you don’t have a credit history - you certainly won’t have a credit score - and you’ll have a lesser chance of obtaining a loan - insurance or other forms of financing.