Beware of 5 Factors That Will Negatively Affect Your Credit Score

A bad credit score is a financial nightmare with long repercussions. Experiencing the devastation of a bad credit score is definitely not the experience from which you want to learn. Yes, there are plenty of credit repair agencies out there to help you – but this is a long and quite cumbersome process. The trick is to stay out of financial trouble rather than trying to seek the best way out of it.

There are many factors that can cause you to have a bad credit score. Try to avoid these pitfalls as much as possible. Being aware is the only way to avoid falling into a financial trap.

1.    Missed payments – Ensure that you always have email/ sms alerts that inform you at least 48-72 hours in advance of any bill payment due date.  This way you will never miss a due date on a bill. Once in a while a missed payment date may not amount to much, but if you keep misplacing/ forgetting/ losing bills and thereby miss payment due dates this can find a way into your credit report and lower your score.

2.    Late payments – Late is late. One day after due date is late. Many people do not know that bills that have announcements that read  ‘payment after due date’ (charging late fee) are also counted as late payments. If you are a regular late payer your score will suffer and this can be a double edged sword as you will incur late fees along with your payments. Being penalized and paying the extra charge does not excuse the continual late payments. Remember to pay your bills on time. A good option is have the funds automatically withdrawn from your account before the due dates. Always make sure you have the funds available so that you do not incur overdraft fees.

3.    Collection status – A loan provider will go to a collection agency only when they feel they cannot deal with you any longer. Do not allow your relationship with the creditor to deteriorate to such an extent. It is interesting and useful to know that most creditors are willing to walk an extra mile or two with you when you are facing genuine financial trouble. Inform them of any financial crisis immediately and enter into a feasible negotiation. Some solutions can include suspending a few payments and having the creditor charge a little extra later on; or lower the monthly installments until you are able to financially cover the extra expenses.

4.    Do not max out your credit cards –  Credit card usage should ideally be anywhere from 10-40% of the overall available credit at best. Maxing out your cards means you are in trouble with your finances and that will of course, find its way into your credit report and reflect through a poorer credit score. Try your best to only use your credit cards when you are sure that you can pay the entire balance in full at the end of the billing cycle each month.

5.    Too much new credit – Suddenly going credit card shopping is a definite no-no. If you think the additional credit added to your name will help your credit score, you are wrong. A sudden high number of loan/ credit card applications spells trouble and the credit bureaus would translate this as an unstable financial situation. This will result in lowering of the consumers credit score. You will also be in trouble if you decide to close too many credit card accounts at once because this would reduce your overall amount of  available credit at your disposal.

Be careful with how you manage your money and credit. Small mistakes can put you through a lot financial heartache.

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