5 Factors That Can Harm Your Credit Score

Credit card firms, auto dealers, and mortgage bankers are three sorts of lenders to whom your credit score will matter the most. They will look at it before choosing how much and at what interest rate they are willing to lend you. Moreover, it is important when taking an insurance policy or renting an apartment. It helps insurance companies and landlords to decide how financially responsible you are.

What are the disadvantages of a bad craft score?

A low credit score is something that no one wants. It can certainly make life more difficult than it needs to be. Here are some of the setbacks of not having a good credit score:

✔️ You may be unable to obtain a loan if you have a poor credit score. 

✔️ It could lead to the need for a security deposit or a higher insurance cost.

✔️ A good credit score gives you good interest on loans. Thus, a poor credit score can make you pay more on your loans.

✔️ You’ll have good career opportunities if you have good credit habits. You may miss out on good career opportunities if you have a bad credit score. Employers nowadays can pull consumer credit reports for making hiring decisions. Additionally, it helps them when determining who to promote or reassign.

Obviously, you should do all possible to keep your decent credit score. And knowing what causes your credit to deteriorate should be part of that action plan.

Top 5 factors that affect your credit score

Here are the five most important factors that influence your credit score. Read on to find out how they affect your credit, and what it implies when applying for a loan.

#1. Making late payments

Payment history accounts for 35% of your credit score. This means that a late payment will have a negative impact on your credit score. In fact, if you pay your credit card bill late for more than 30 days, it is immediately posted to your credit report. There it might linger for up to seven years. Other information on your credit report will affect how many points it loses. Thus, prepare to lose even more points if you have good credit.

#2. Unemployment

Unemployment claims are not recorded in your credit report. On the other hand, it will have a negative impact on your credit score if you are unable to pay your payments on time or in full. Moreover, as previously said, if you have a decent credit score, a missing payment of more than 30 days will cost you more points than it will on a terrible credit score. So, if you wish to avoid this, you should look into alternative financing options, such as peer-to-peer lending networks. These can provide you with instant access to cash and a lower interest rate. And you’ll still be able to pay your bills on schedule this way.

#3. High credit card balances

When determining your credit score, your credit utilization ratio is important. This figure is calculated by comparing your credit card limit to how much of your available credit you’ve used. Lenders perceive you as a bigger credit risk if your credit usage ratio is high. As a result, if you max out your credit cards, your credit score will suffer. Therefore, to keep your credit score healthy, experts recommend using only 30-35 percent of your available credit.

#4. Multiple credit applications

The lender will run a credit check on you every time you apply for a credit card or a loan. The issue is with the type of investigation they conduct. Lenders who wish to pre-approve you for a loan or credit card frequently do a soft inquiry. Thus, this type of question has no bearing on your grade. On the other hand, the difficult query has the potential to reduce your score by up to 5 points. When you apply for credit, a hard inquiry is made, and this information is included in your credit report. The hard inquiry will be visible to anyone who runs a credit check on you. Therefore, the more credit applications you submit in a short period of time, the lower your credit score will be.

#5. Closing old credit cards

Since it helps lenders to assess how well you manage your financial commitments, your credit history accounts for 15% of your credit score. Your score will improve as your history becomes longer. Closing outdated credit cards will lessen your credit history on your credit report, lowering your credit score. Additionally, canceling credit cards with available credit will raise your credit use ratio. This is because you are reducing the amount of credit you have available relative to how much you have previously used.