Common Mistakes Trash Your Credit Score
Maintaining a good credit score is one of the most important things you can do to secure your financial future. Your credit score impacts your ability to get a loan and the interest rate you will be charged, but that’s not all. Landlords, insurance companies, and even prospective employers are likely to look at your credit score when deciding to rent to, employ, or do business with you. Understanding the factors that influence your credit score will help you avoid some common mistakes that can send your numbers plummeting.
Common Credit Mistakes
There are many kinds of credit scores. Their numbers can vary significantly and be misleading. The one you should be concerned with is your FICO score, which is what 90% of lenders look at and consider to be the industry standard. There are three types of FICO scores, one for auto loans, one for mortgages and one for credit cards. Additionally, there are five categories of activity that determine the overall number based on your credit history. The Fair Isaac Corporation site, myFICO, explains it like this.
- Payment history makes up 35% of your score. Creditors want to be sure that you pay your bills on time.
- The amount you currently owe is worth 30%. If you are overextended, you might be a bad risk.
- The age and activity status of your accounts equals 15% of your score. Closing older accounts can lower it.
- The types of credit you hold account for 10%. These include major credit cards, store-brand credit cards, and loans you may have.
- New credit applications are also worth 10% of your score. Customers who have opened several accounts in a short time are considered to be at higher risk for default.
The Point System
- The first on the list is maxing out your cards. This is an indicator that you may be at risk of defaulting on your credit obligations and will cost your credit score 10-45 points.
- Did you forget to pay a bill on time? Make a payment 30 days late, and your score will take a 60-110 point plunge.
- Have you had to settle a debt with a collection agency? Your credit score can take a 40-125 point hit for that.
- Foreclosure by a lender on a homeowner who has stopped making mortgage payments will lower the score by 85-160 points.
- Last but not least is the dreaded bankruptcy. Filing for that will cut your score by a staggering 130-240 points.
Remember, the higher your credit score is, the more points you will lose if you make those mistakes.
Are you struggling with a damaged credit score? The Credit Care Company of St. Louis, Missouri, can help you resolve your credit, business credit, and student loan problems to give you a second chance you deserve. Contact our credit experts for a free consultation today.