Credit scores are determined by credit bureaus that collect information about individuals' credit history. Credit scores are greatly impacted by consumers' payment history and amount of outstanding debt. Certain decisions and transactions made by consumers kill their credit scores, and you should attempt to avoid them to prevent damage to your credit score.
Payments
Your payment history has the biggest impact on your credit score. Neglecting to make timely payments will greatly decrease a credit score in a short period of time. Financial experts suggest making timely payments, even if it's only for the minimum amount.
Spending Too Much
Maxing out your credit cards and going over the credit limit will kill your credit score. The higher your credit score, the more points you will lose by maxing out your credit cards. You will also incur over limit fees and possibly a higher interest rate. When your outstanding credit card debt is close to your available credit limit, you will see a decline in your score.
Not Having Enough Accounts
Only possessing one credit card hurts your credit score because it limits how high your score can rise. Lenders like to see individuals that can responsibly handle several types of credit, including credit cards, mortgages and car loans.
Settling Debt
It is tempting to settle a debt for less than what is owed when you're in debt but doing so can damage your credit score. The process to settle a debt can last for a significant amount of time and many consumers fail to make payments while in the debt settlement process. If your account is already in collections, settling a debt will have less of an impact on your credit score.
Foreclosure and Repossession
When you are consistently late on a loan payment for a home or car, the lender has the right to foreclose or repossess your property. Foreclosures and repossessions hurt your score because of consecutive late payments and can also lead to a judgment taken against you by the creditor.
Too Many New Accounts
Your credit score receives a greater boost from old accounts than new ones. The reason being is that old accounts show lenders that a consumer is responsible and able to pay his debt. Opening too many accounts in a short period of time can kill your credit score.
Closing Accounts
When you close an account that has a balance, your outstanding debt remains the same while your available credit limit declines. When you close too many accounts and cause the ratio to increase, your credit score declines. The same is true when you transfer a balance to another account.
Neglecting to Check Report
Even if you pay your bills on time, having errors on your credit report can hurt your credit score. Enrolling in a credit monitoring program is beneficial for some people because any unusual credit activity performed in your name is immediately reported to you.
Filing Bankruptcy
You should file for bankruptcy as a last resort because it has an immediate impact on your credit score that is lasting. Individuals that file for bankruptcy usually end up with a credit score that is near the bottom of the range. Alternatives to bankruptcy are forbearance, loan modification, credit counseling and settling your debt.
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