A drop in your credit score is definitely not a surprise that you want to have. Luckily, you have the power to protect your score. You can avoid the 5 biggest things that can cause less-than-great credit if you know what they are, what they can do to your credit score and how they can affect your finances when they appear on your credit report.
Here are the top 5 things that can cause less-than-great credi
- Generating Too Many Inquiries
Every time you apply for work, loans, or sign up for service contracts, you are generating inquiries on your credit report. Some of these inquiries can negatively affect your credit rating, lenders check your credit report to assess how well you’ll be able to pay off a loan or make regular payments on a service (these inquiries are called hard inquiries). The more creditors check your file, the more it looks like you’re trying to get credit all over the place. This can make you seem like more of a risk to potential lenders, the same way that you wouldn’t feel great lending money to a friend who already owes money all over town. Hard inquiries can lower even a great credit score by five whole points. Ideally you have to control the number of inquiries that will reflect on your credit history. Keep track of your credit applications to avoid the negative impact on your credit score.
- Ignoring Unpaid Bills
When third-party agencies start contacting you to collect an unpaid debt, this is a significant indication for delinquency–or in other words, you’ve got a reputation for not paying your creditors back. Ignoring unpaid bills is never a wise thing to do, as this can lead to more serious problems: the debt can grow, collectors will keep calling you, you could be sued, your credit applications can get denied, your credit will suffer, the lenders may contact other people you know, and it can cause you a lot of stress. Knowing you have an unpaid bill might feel stressful enough that it feels easier to just avoid it altogether, but facing the problem head-on is the only way to solve it.
Your unpaid bills are very much your responsibility–and your liability. When companies get tired of asking you to pay for your credit, they let debt collectors step in to do the job for them. Once these third-party agencies report your unpaid bills to credit bureaus, your credit score will drop. Ignoring your bills won’t make them go away, but it will make them cost you more in the long run.
- Incorrect Public Credit Information
Incorrect public records on your credit report bad news. Public information on your credit report includes details anyone can see if they look you up. This includes things like bankruptcies, tax liens, and civil judgements, all of which can harm your credit score. Review your credit report periodically for any incorrect information so you can dispute these errors. The last thing you want is to be paying for financial mistakes you didn’t even make!
- Using Over 30% Of Your Credit Line
Using over 30% of your credit line means that you have more payables and less credit. The less-than-30% rule has been tagged as a myth several times, but let’s get real: this is more of a guideline, and a critical one which can save a great credit score from dropping. Maxing out your cards every month can suggest to creditors that you’re living paycheck to paycheck, which means that even if you’re making your payments now, any sudden financial hardship that comes along could sink you. It might give your creditors a bad impression, but it’s also true: if you’re using your entire credit limit, or a major chunk of it, every single month, you probably aren’t spending wisely. Avoiding using more than 30% of your available credit only means that you are more aware and in control of your credit spending, and that you’re living safely within your means. It looks better to creditors–and it also looks better for your bottom line.
- Having No Credit At All
Having no credit at all seems great in a way–if you’re not borrowing anything, you’re only spending your own money, so of course you’re fiscally responsible, right? Maybe, but it doesn’t look that way to creditors.. Remember, your credit score determines the rates offered to you when you sign up for contracts and spend on big-ticket items that you want and need, like renting or buying a house, getting a car or insurance. If you don’t have credit at all, companies won’t be able to make a calculated prediction on how are you capable of managing your finances. Applying for a loan or a mortgage without any credit history is a lot like applying for a job without any work history. Your credit score is like your resume–it proves that you’ve borrowed money before and that you’ve been able to pay it back. Paying for everything in cash might be responsible for you on an individual level, but it does nothing to prove that you’re creditworthy.
Maintaining good credit can be hard with the enticing offers that come with applying for credit. However if you are trying to increase your credit score you want to stay away from hard inquiries. If you would like set up a review of your credit report click the link to set up a discovery session. Remember, your credit is like your personality it tells lenders what type of person you are before they get to know you.