There are ways we can affect our credit score in the right direction, but we also have habits that can affect our credit rating on the negative side of things.
Our credit score is one of the most critical parts of our statistics that dramatically affects the way we deal with things financially. Having a good credit score will give us leeway, especially if we are aiming for a mortgage loan or we have to get that new car and avail of an auto loan.
A credit score can also help us not only in major loans. Depending on the rating we have on our reports, we can either get exclusive discounts and perks only available for people within the low-risk categories. Banks and other financial institutions also look at our credit scores and determine if we are eligible for different kinds of loans. There are just common examples of the gravity credit score has in our society.
With that said, there are many practices that evolved into habits that can greatly affect our credit records. Most of them are good stuff while others can be placed on the other side of the equation. With that in mind, what are the things we should avoid that can worsen our credit scores?
Things We Should Look Out For
Defaults and Late Repayments of Debts
Most of us don’t know the gravity defaults and repayment history do to our overall credit rating. To give us a quick figure, it contributes around 30 to 35% of our current credit standing.
Every time we miss out on our debt repayment or the due date of our bill, lending agencies will pass reports to credit information bureaus which means, we will get a negative hit in our standing credit score. They will also take into account the size of our loan and the number of days we passed on our due.
Now we see the importance of paying our bills on time. That’s just the start.
Credit Card Utilization Rate
As a typical citizen, the term credit card utilization rate is not a word we hear every day. In the financial world, it is the metric that they use for their scoring process. It is the average balance we have on our credit cards versus the available limit under our name.
It doesn’t necessarily mean that a spike in our credit spending will get our credit score in a bad position. However, the ratio between our average spending and the total amount available on our account will be affected. We have to keep in mind that lenders will assess our ability to spend the money they lent to us and see if we are responsible enough or if we will spend it all in one go.
Secured loans are loans we take for things that can be considered as assets. It can either be home loans or property loans that will generate income in the long run. Paying these kinds of loans in a timely manner will significantly help our status and our credit score.
On the flip side of the coin, we have unsecured loans. These are loans we use for funding our personal needs such as personal loans. With that in mind, having too many unsecured loans will have a poor effect on our credit trend and may lead to a bad score. Aside from the harmful effects it may cause to our report, it also comes with higher interest rates than secured loans so we are hitting two birds with one stone – our credit report and our savings.
A credit check is part of the process whenever we wanted to apply for a loan. By doing this, they will know the likelihood of us paying our debts in a timely fashion. However, running a credit inquiry too many times during a short span would have negative effects on our overall credit report.
Once our lenders found our credit report and they saw a couple of runs made during the past few weeks, they will assume that we are loan-hungry people who badly needed their money. It also makes it harder for us to get that approval, so be on the lookout for that.