October 6th, 2015 by Jason M. Kaplan, Esq.
5 Common Factors that Lead to a Bad Credit Rating
Ever since the global financial crisis first reared its head towards the common men in 2008, financial institutions have put in place a greater number of credit policies and stringent background checks to ensure that the probability of coming across bad debt is minimized. Now, be it a house loan, car finance, or even an application for a rented apartment, a credit score can make all the difference in the world. Yet, a large number of people are still at a loss because they fail to know how credit scores are calculated. Therefore, knowingly or unknowingly, these people make mistakes that push their credit scores down.
Here are 5 of the most common factors that push credit scores down:
- Late Payments:
Typically, your credit scores are not affected much if you hold up your debt payments for a few days. However, things start to get serious when the duration of the delay reaches the 30, 60, or 90 day mark. This form of delay is often referred to as ‘delinquency'. Once a credit scoring company reports your delinquent credit behavior to the credit bureaus, your score can take a huge dip and drop by 60 to 100 points.
What's worse is that the higher your credit score prior to the delinquency, the higher the damage of the delinquency. If for some reason you cannot pay your debt at all, you will be faced with either a charge-off, a judgment, foreclosure, or a collection amount (meaning that the delinquency will be a part of your credit report for seven long years).
Although going bankrupt sounds like the end of the world, it can be cured. For times when you simply cannot take the debt anymore, filing for bankruptcy is the only option. Once you file for bankruptcy, the judge can either give you a clean slate or alter your repayment plan. Whatever the decision may be, bankruptcy will stay on your credit report from anywhere between 7 to 10 years and can result in a credit score loss of up to 200 points. Fortunately though, the effects of bankruptcy can be repaired fairly quickly once you start rebuilding your credit.
- Loan Cosigning:
Pretty self-explanatory, loan cosigning refers to you jointly taking a loan with someone else or on behalf of that person. As many financial experts will tell you, loan cosigning is perhaps one of the worst things that you can do to your credit score. When you cosign a loan for someone, you are letting that person play with your credit score. Therefore, loan cosigning must be avoided at all costs as the results can be damaging.
- A Large Number of Credit Card Applications:
Credit card usage is common and almost everyone seems to own a few forms of credit cards. However, too many credit card applications can eventually end up damaging your credit score. Each time you apply for a new credit card, an inquiry is conducted on your credit rating. Each inquiry then results in a credit score dip of 2 points. Fairly inconspicuous sounding at first, too many credit card applications can quickly shoot up the credit score damage. For instance, if you apply for 10 credit cards in a short span of time, your credit score can take a dip of 20 points, which is fairly a large damage.
- Failing to Report Inaccuracies:
Mistakes are what makes us human, and the same can be said for credit reports. There are a number of reports that go unreported on credit ratings and these range from credit identity theft to simple numerical mistakes. Therefore, in order to avoid unnecessary dips in your credit score, always keep a check on your credit rating and report discrepancies to the respected institutions.
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