Your credit score is key to you having healthy finances. It essentially helps lenders decide if they can lend you funds and how much. A bad credit score can truly hamper your chances of getting money when you need it the most. Here are some things that can cause you to get a bad credit score:
- Failing to stick to credit agreements
Every loan or credit card taken is essentially an agreement between a borrower and a lender. Like all agreements, you are required to follow the terms and conditions set prior to the transaction. These conditions include the amount you have to pay back and the time period within which you have to make the payment. Missing a payment, paying a lesser amount, or making a late payment can all have a negative effect on your credit history. One or two such instances may not have a substantial effect. However, if it happens regularly, it can be a major problem.
A long string of repayment defaults can lead to your credit score being classified as bad credit.
- Declaring bankruptcy
Bankruptcy is described as the inability of an individual or a company to meet repayment requirements. Declaring bankruptcy is a legal course of action taken to get relief from debt obligations. It is essentially a declaration that you cannot pay the loan back.
It should not come as a surprise that declaring bankruptcy can definitely affect your credit rating. Bankruptcy shows up as a big blemish on your credit record and can stay on your record for several years. This makes it hard to get lenders to trust you in the future.
- Choosing the wrong credit card
Marketing for credit card companies generally involves an aggressive promotion of attractive deals through various mediums. One of these mediums is direct calling. Various credit cards offer numerous additional benefits on transactions done through the card. Many people find themselves lost in lucrative deals and do not think carefully before opting for a particular card. The credit card you opt for should have a manageable credit limit, zero or negligible fees, and interest rates that do not affect your repayment. Essentially, you should select a card that does not encourage debt.
Your ability to pay your credit card back is used by credit reference agencies to determine your credit score. The choice of a credit card unsuited to your finances can lead to a bad credit score.
- Having no credit history
It is a common misconception that not taking credit cards or loans can save you from a bad credit score. The truth is, your credit score will drop even if you have not taken a loan or a credit card before. This happens because credit reference agencies have no credit history to cross-reference against your name. A lack of credit history leaves them unable to decide whether you can repay loans properly or not. This projects you as a risky borrower in their eyes.
