In a previous article, we discussed what your credit score is and how it is calculated. In this article, we’d like to provide some helpful information on four unexpected things that can negatively impact your credit score, and how to avoid them.
1. Not Having a Credit History
Ironically, one factor that affects your credit score is not having any debt at all. If you’re looking to build a credit history, and don’t currently have any debt, you might want to consider taking out a credit card or two.
Look for cards with no annual fees and the lowest possible interest rate. Then put them to use, to pay for recurring bills that you know you can cover. Then make sure you pay off your balance in full each month. This has two benefits:
- You’re less likely to miss a payment if it’s paid automatically.
- The more you use your credit card and pay the balance in full, the more your credit score will grow.
2. Missing Payments
While months of on-time payments reflect well on your credit score, a single late or missed payment will stand out. It’s unfortunate, but one mistake can hurt. The best way to avoid missing payments is to make sure that your finances are organized and that you’re living within an effective budget. Another easy way to avoid missing payments is to automate monthly recurring payments so that you won’t forget them.
3. Not Prioritizing Payments
You should always strive to make all of your debt payments on time and in full.
However, if you find yourself in a situation where you can only pay your mortgage or your credit card payment, prioritize your mortgage payments.
This is because you’re likely to accrue a larger delinquent balance on a mortgage than a credit card. When you miss a credit card payment, the only thing that’s past due is the minimum payment, when you miss a mortgage loan payment, your credit score will reflect that you are delinquent for the full amount owed.
4. Going into Collections
Missing a payment or not prioritizing a payment is bad for your credit score, but consistent non-payment is even worse. If you don’t pay your bills, you run the risk of your accounts going into collections; this can further hurt your credit score.
The solution is to stay on top of all your bills, especially for mortgages, utilities, medical bills and credit cards. While policies will vary by creditor, your account usually won’t go into collection unless you haven’t paid in 180 days. This gives you time to get caught up on payments.
If you find that you are unable to make payments consistently, and are in collections, or run the risk of going into collections, it may be a good idea to talk with a credit counselor. They can help you assess your financial situation, create a budget and help you to effectively manage your debt with a Debt Management Plan.
Want to learn more? Schedule a free counseling session today or call us at 800-920-2262.
