Credit Repair

6 Most Common Factors That Negatively Affect Your Credit Rating

Credit rating refers to the report prepared by credit bureaus to help lenders to determine your credit worthiness. If you have a poor rating, you may have to face great difficulty in obtaining loans, credit cards, and even insurance polices. Even if you manage to qualify for one, you are likely to be charged a higher rate of interest on loans and credit cards and higher premium on insurance policies. Your rating depends on how responsible or irresponsible you have been with your finances. There are plenty of factors that credit bureaus take into consideration in order to determine your rating. Following are six most common factors that result in poor ratings.

Not Making The Debt Repayments In A Timely Manner

If you are not making the monthly payments toward your debts in a timely manner, it will adversely affect your credit rating. Late or delinquent payments indicate that you are unable to manage your debts, which turns you into a high-risk borrower. Many people try to avoid their credit card debt by making just the minimum monthly payments, which is one of the worst financial moves one can ever make. Such financial moves will only push you toward a deeper debt problem.

Your Past May Also Affect Your Present

Many things that happened in past may also affect your current rating, such as a few old accounts that were in collections or a couple of years back when you had filed for bankruptcy and other such things. It is important to note that bankruptcy and collection records stay on your report for several years. Likewise, if you settle some of your debts using a debt settlement program or with the help of a credit counselor, it may also have a negative impact on your credit report. However, it will mainly depend on how your creditors who you settled the debts with report to the credit bureaus about debt repayment. If they report your debt accounts as “paid in settlement”, it will reduce your FICO score. But if they report as “paid in full”, your score will actually increase. Even working with a professional credit counselor may also have adverse effects on your credit rating. Therefore, you must be very careful before you sign up for a debt consolidation, debt settlement, debt management, or credit counseling program. You should pay special attention to how your creditors are going to report about your debt payments if you opt for such programs.

The Amount Of Current Outstanding Debts In Your Name

The total amount of current outstanding debts in your name also plays an important role in this regard. Having too much debt is a bad sign and lenders consider such individuals as high-risk borrowers. Therefore, if you have a poor credit score, you should try to pay off your debts faster so that the outstanding balances on your debts should decrease. With a decrease in the outstanding debt balances, you will see a rise in your credit rating.

Too Many Credit Accounts

Even if the total outstanding balance on your debts is low, having too many debt accounts is a bad thing. Many people acquire too many credit cards in an attempt to “take “advantage” of all lucrative offers that come their way. But, it is important for you to understand that such financial moves can be very risky for your credit score.

Sending Too Many Applications For More Credit

If you have sent too many applications for more credit within a very short period of time, such as for loans or credit cards, it will adversely affect your credit worthiness. Even if you only made enquiries and did not actually obtain new loans or credit cards, it will lower your FICO score. Things can be worse if your applications get rejected. Therefore, you must be very careful while you send applications for new credit. Apply for new loans when it is absolutely necessary; you know it very well – debt is not a good thing for your financial health.

Unstable Employment History

Though the laws in the United States of America prohibit credit bureaus to consider employment history to determine credit score, most lenders still take that factor into account. If you have a bad employment history and a poor credit score, you may not be able to qualify for loans, mortgages, or insurance policies easily.

Poor credit rating does not just create hurdles in qualifying for loans or credit cards. It also makes it difficult for you to rent a home or to get a utility service (such as a new phone connection) in your name. Even if you do manage to qualify, you are likely to be asked to make a heft security deposit first.


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One Response to “6 Most Common Factors That Negatively Affect Your Credit Rating”

  1. Dennis says:

    Credit rating builds up comprising of many facts. There are many things which has to keep in mind if you want a good credit score. Credit rating reflects your financial responsibility, how much responsible you are to handle your finances. The article has covered some most common factors that can affect your credit rating. The most important factor is how punctual you are towards making the repayments of your debts. If you are not paying back your debts in a timely manner, it may push your rating on the lower side. It is better to pay the installment of your credit card in full. If you have come across the trauma of Bankruptcy in your past, it can affect you even today because Bankruptcy shows on your credit report for ten years. If you are always willing to get more credit cards, it will also affect your credit report, it can reduce your FICO if you just make an enquiry for a new loan or credit card so make sure you are not going to do a enquiry for a credit card in future. Multiple credit card does not show your financial status good, no need to keep multiple cards.

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