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| Mistakes that Hurt Your Credit Score |
| Written by Gloria Zhu | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 There are a few common mistakes that people make that can damage their credit scores. However, just recently has this part of the coveted formula of your important three digits been revealed. FICO spokesman Craig Watts said, "Getting and maintaining a good score isn't complicated. We all just need to pay our bills on time, keep credit card balances low and take on new debt sparingly. " Along with these words of wisdom, you want to avoid the following common mistakes that people tend to make. Also keep in mine that the higher your credit score ranks, the more points can be taken off by these careless mistakes or financial disasters. Here is a list of mistakes in an order of descending damage caused to your credit scores. Bankruptcy Bankruptcy causes the most ruthless damage to your credit score. It can drop your score up to 240 points. Bankruptcy is an option for individuals who cannot pay their debts when they are due. A bankruptcy will be factored into your credit score until it falls off your credit report. It may take up to ten years for a bankruptcy to fall off your report, but the impact will lessen over time. The sooner you begin retaining or re-establishing good standing in credit after your bankruptcy has been filed, the sooner your FICO score has a chance to bounce back. The sooner you begin retaining or re-establishing good standing in credit after your bankruptcy has been filed, the sooner your FICO score has a chance to rebound. To learn more about strategies of rebuilding your credit scores, please check out How to build credit score after bankruptcy. Foreclosure Foreclosure can damage your credit score up to 160 points. Bank foreclosures occur when a bank claims ownership of a property because the property owner has delayed or ceased to make mortgage payments. The foreclosure process usually begins after three missed payments in which banks will notify you by sending you written notification that you are in default (which means you are failing to meet payment obligations of the mortgage agreement). If you do not pay the overdue amount owed, your property will be sold at public auction. Although a foreclosure will not ruin your credit rating forever, they do stay on your credit report for at least seven years. Debt Settlement You may have considered debt settlement as an alternative solution to filing bankruptcy. The procedure seems simple too: you find a debt settlement company and transfer your debt payment from your original creditor to the company. The debt settlement company will work out a new payment plan you can afford, either by reducing the amount of debt or lowering monthly payment. However all the benefits come at a cost. Creditors do not simply accept to settle debts unless they are a few months or more past due. This means that to be suitable for a debt settlement, you need to stop paying your debt for a few months at first. Such late payment will be reported to the credit bureaus, and show up in your credit report. As a result, debt settlement could hit your credit score badly, dragging down your score up to 125 points. Even if the debt settlement company successfully settles your debt with your creditors, the delinquent account information still remains on your credit report. Your account will be updated to “Paid-settled”. This mark is still much worse than “Paid in full”. Late Payments Missing a bill or paying late is one of the most common mistakes people make, like, all the time. However they could harm your credit scores a lot more severely than you might have thought. 30 day late payment can surprisingly drop your score by more than 100 points, in some cases, almost as bad as bankruptcy. And it will stay on your credit report for as long as 7 years. In addition, recent late payments carry more weight into your credit score calculation. So you want to prior the most recent ones when you try to repay. Maxed-Out Your Cards Compared to bankruptcy and foreclosure, maxing out your credit card has the least numerical impact at as few as 10 points. Credit cards offer credit limits which are the maximum amount you can charge without penalty. However, the credit card issuers do not intend for you to use your entire credit limit. When your credit card reaches or exceeds the limit, you have “maxed-out” your credit card. Depending on your credit limit, a maxed-out credit card balance could take years to repay, especially if you pay only the minimum. You may plan to pay the balance in full, but parting with that much cash might be too difficult to do as the payment due date approaches. So it's best to keep your credit card balance below 30% of your credit limit. Such a credit card balance is good for your credit score and is favored by lenders.
Negative Impacts of Your Mistakes Let’s use some real examples to see how much credit mistakes can cost you in real money. Below, the charts demonstrate how much money you can save by avoiding any mistakes that devastate your credit score.
Ultimately, it takes time and effort to be on top of your credit score. Find and fix any mistakes that could be pulling your score down. Next, find a way to pay your bills on time and commit to it in the long haul! Thanks to the internet, there are numerous resources out there that will help you such as our article on How to Repair a Bad Credit Score.
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| Last Updated on Thursday, 26 August 2010 03:45 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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