Having bad credit might not seem like a big deal, and, indeed, it might not affect your everyday life. However, when the time comes to take out a car loan, rent an apartment, or purchase your first home, you might learn first-hand how troublesome a low credit score can be. Poor credit can occur for various reasons, with some of the following ones being among the most common.
You’ve Made Late Payments
Time can get away from us, and companies offering credit repair Australia-wide have seen many cases of people having poor credit scores because they’ve failed to pay their bills on time.
Surprisingly, your payment history makes up 35% of your credit score. As a result, any missed or late payments might cause a dramatic drop in your score, impacting your ability to secure competitive loans or even your dream home. If you’re worried about paying your bills on time, consider setting reminders so that you don’t forget and putting aside funds to cover expenses to ensure you won’t be caught short.
Your Account Has Been Sent to a Debt Collection Agency
When bills go unpaid, and companies have no luck recovering what they’re owed, they sometimes sell the debts to collection agencies. Once the debts have changed hands, they’re captured in credit reports. If you don’t repair this information with the help of a credit repair company or by going directly to the agency, you might find that the record of debt collection decreases your credit score and potentially impacts your borrowing abilities for cars, homes, and more.
You Defaulted on a Loan
There may come a time when you’re not in a position to cover a loan payment, even if you were financially secure when you took out the loan. Your credit score might be lowered if you miss more than one payment and don’t pay the owing balance by the end of that month. Often, lenders will forward your payment history to credit bureaus, impacting your reputation and making future lending companies consider you a high-risk borrower. You might still be able to take out loans, but interest rates and associated costs might be higher.
You’ve Filed for Bankruptcy
Bankruptcy can sometimes be the only way to clear yourself of debts you know you’re not going to be able to pay. It’s more common than you might think, with over half a million Americans filing for bankruptcy in 2020 alone. While it’s the last resort for many people, it can dramatically impact your credit score. Bankruptcy can remain on your credit report for seven years, and many reputable lenders shy away from lending to people who have a history of bankruptcies.
You Have a High Credit Card Balance
Many people rely on credit cards to cover their regular expenses until payday arrives. However, high credit utilization, or a maxed-out credit card, might be more damaging than you realize. Your level of debt is a crucial consideration for lenders and has the potential to decrease your credit score. If you’re trying to improve your score, consider paying down your debt and remaining under the borrowing limit.
Poor credit can be devastating, especially when you’re trying to make important life decisions, like buying or renting a home. By being aware of what can damage your credit score the most, you might be better positioned to keep your score as healthy as possible.