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.
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