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Having bad credit means paying higher interest rates, less savings, and limited financial options in the future. A credit rating is determined by your FICO score, which ranges from 300 to a perfect FICO score of 850.
Factors that determine a rating include payment history, inclusive of late payments, length of credit history, and how much money you owe creditors. Each bank or lender also has their own way to evaluate a borrowers risk level.
Below are five things that will ruin your credit.
Source: https://www.1855jetdebt.com/improve-credit-score/
The fastest way to bring down your credit score is to max out your credit cards (or push your credit line to its limit). In fact, experts say that borrowers should limit credit card balance to 35% or less.
If your balance is higher than 35% you should be pro-active in paying it off.
Missed or delinquent payments are the fast-track to a lousy credit score.
Since payment history makes up 35% of your credit score, failing to make the minimum payment within 30 days of the due date is a big red flag for banks or lenders. Each time it's considered a "hard inquiry" on your credit score.
Example: if you have never missed a payment and your credit score is in the 700’s, missing one 30-day grace period can drop your FICO score as much as 100 points. And making up the 100 points will take a lot longer (possibly years).
As mentioned above - length of credit history is a major factor on your score. Scoring algorithms calculate on average how long all of your accounts have been open. The average age of accounts is your "credit age".
It's best to keep your credit card debt under 35% for each card.
One of the surest ways to destroy your credit score is to be well-above that. If you have a maxed out credit card you are severely limiting options - not only are you going to get a lower credit line on the next card, but you'll be offered unfavorable rates when applying for a home mortgage or auto loan.
The worst-of-the-worst for any credit score is to file bankruptcy.
Whether you file chapter 7 vs. 13, personal bankruptcy will ruin your credit score for a few years. It can take a few years to get approved for another line of credit, and at least 5-years to earn a fair credit score.
Chapter 7 Bankruptcy: 7-10 years
Chapter 13 Bankruptcy: 3-5 years
We publish consumer guides for borrowers struggling to get out of debt.
