Did Your Credit Score Plunge Worse than Real Estate?

As you probably know, your credit score is considered your statement of credit risk. Basically, it is a number that represents your likelihood to repay your debt on time. So, what causes your credit score to fall then? The following list will give you an idea of what causes your credit score to fall. These are all things that you should avoid.

 

  1. Late Payments

First and foremost, you want to avoid late payments, and multiple late payments are even worse. In fact, under most credit scoring systems, your payment history can account for up to 35% of your credit score.  Wow…that’s a big percentage to be concerned about. More than a third of your credit score from just your payment history. Think about that for a second. Just one late payment, if the creditor reports it (and nowadays, it seems more creditors report more frequently), can affect your credit score pretty quickly.  Ouch!

  1. Charge Offs, Judgements, Bankruptcies

If you suddenly get a judgment or charge off reported on your credit report, that’s a big negative. As you can probably guess, a bankruptcy filing will cause your credit score to plummet.

  1. High Balances

High balances on your credit accounts. This means you are close to your cred limit. Lenders don’t like to see that. High balances signal to lenders that you are already stretched too far. The credit reporting agencies will lower your score when this occurs. Oh, and one more thing. Depending on the type of credit accounts you have, a lowered credit score may cause the interest rates you pay to rise on other accounts. Double Ouch!

  1. Large Number of New Accounts

A bunch of new accounts can also cause your credit score to drop. For example, all of sudden you went on a binge and opened four new charge accounts in a weekend. Although this is harder to do nowadays, it is still possible. Don’t worry though, the credit reporting agencies will eventually find out, and when they do, down goes your credit score.

These are the four biggest reasons people see their credit score drop.

A Way Out:


Is there a way out of this mess? Yes, actually there is. Here is a brief overview on how to rebuild your credit score.


  1. Begin by assessing your credit report. Verify that the information is accurate and that the debts or other information reported is correct. Remember that if a credit reporting agency can not verify the accuracy of negative information on your report, they are required to remove it.

  1. Next, begin by paying off some of your loans, especially your credit cards. Oddly, paying off a credit card has more credit score increase value than paying off a consumer installment loan like a student loan or car loan. How about that for odd math? One would think that paying off the student loan would have more value, but not so. Apparently, paying off that past due VISA credit card bill will do more for you.

  1. If you can’t pay off your loans, work on paying them down. One big hit to credit scores is the percentage of available debt. Think of it this way: let’s pretend you have a Visa with a $1,000.00 limit. But, over the past few months you have charged more than you have paid. The result, now you have a $900.00 balance on your VISA Card, and your available credit is only $100.00. Worse still, the credit reporting agency sees that you are using 90% of your available credit. This is not good. The point is to pay down your credit cards and loans as much as you can.

  1. After paying off some of your loans, consider getting a secured credit card. Interestingly, the credit card scoring companies consider recent activity more relevant. So, if you obtain a secured credit card and use it responsibly, your credit score will begin to rise again.

  1. Finally, as you begin rebuilding your credit slowly, make sure you take steps to keep your debt under control. Eventually your credit score will rise again as your debt is paid, and you won’t have to go through this again.

Reader Thoughts!

Have you ever had to deal with a low credit score? How did it get there, and what did you do to fix it? Have you tried other credit rebuilding strategies that aren’t listed here? Please share!

Comments

  1. I like how Dave Ramsey puts. Your credit score is a I love debt score. It’s funny that the less debt you have or even if you don’t have debt your credit score will drop. Crazy!

    • You don’t have to have debt to have a good credit score. For example, If you have a budget and use a credit card to make purchases that you budgeted for you can have 0 debt, pay your credit card in full with the cash you were going to use anyway and still have stellar credit. I did this for many years, until I purchased my home and a few rental properties.

  2. Luckily, despite all of my past debt and past financial mistakes, I’ve always managed to keep my credit score in the ‘excellent’ range. It’s the one thing I was smart enough to keep in tact during my mindless spending days and I couldn’t be happier that I did so. Having the score I have afforded me excellent opportunities to purchase real estate with a great mortgage rate, etc.

    • Great job! Don’t you love how credit scores work? You can be deep in debt, but as long as you don’t miss a payment you can survive the debt and have a excellent score. When was the least time you purchased a property and how are you doing in the cash flow department?

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