Everyone’s taught the importance of maintaining good credit, but not everyone knows just what causes a credit score to drop. There are, in fact, many reasons that your credit could go south.
Causes of Low Credit
The most common reason someone has bad credit is they have made late payments. More specifically, it’s late payments on credit cards. These account for 35% of your credit score, so missing even a few installments can lead to serious damage.
After a few months, your creditors may see these as being charged off, which means that they don’t think you intend to pay your debts. This, alongside being handed over to a collection agency, can cause further damage to your credit score. As your situation worsens, so does your credit. The biggest blows come from bankruptcies, foreclosures, and unpaid judgments. These can stay on your report for 10 years.
The Consequences of a Low Credit Score
What does all of this mean in real-world terms? The most immediate result is that the interest rates on your credit card bills start climbing. It also means that your applications for new credit cards could be rejected and borrowing options are limited to loans for a low credit score account. You may be forced to pay a security deposit on utilities such as electricity or telephone service. Low credit scores can also mean higher insurance premiums since insurance companies claim that people with bad credit tend to file more claims.
Other ramifications include difficulty finding a job in certain sectors. The finance industry takes a close look at people’s credit reports to see if there’s something there that could hinder productivity and performance. If they find something, you might not get the job you want. It’ll be harder to find an apartment or a car because landlords and auto dealers may see you as too risky. You may also have trouble getting a good cell phone contract for the same reason. Finally, it can be extremely difficult to receive a loan of any kind with a low score.
With all the problems that can come from bad credit, you’ll want to have your score rise again as soon as possible. Thankfully, there are plenty of credit repair options available.
Rebuilding Your Credit
The first step to rebuilding your credit is to obtain copies of your credit reports from all three major agencies. These will tell you exactly what’s wrong, so you’ll know just what to fix. If you find any errors, you should contact the agencies to get them removed. If there are no errors, your next step will be to start paying off your bills. Start by paying your past due bills that haven’t been charged off. Once that’s done, tackle your charged-off bills. You should always pay more than the minimum payment on each bill. If you can pay double the minimum, you should do so.
Once you’ve paid most of your debt off, you should consider getting a credit card and paying the monthly payments on time every time. If you have trouble getting a card, then you should look at applying for a secured credit card from your bank. They require a deposit to use, but they can actually be used in more places than retail cards.