Lenders often use credit scores in determining interest rates and how much a person will have to borrow. A low credit score can lead to unsecured debt, a higher cost of borrowing, or difficulty qualifying for loans. However, it’s also easy to see how things unrelated to debt (such as skipping out on paying rent) can cause your credit score to plummet. Here are five aspects that can hurt your credit score.
It’s difficult for a lender to learn that a person has missed payments on a loan, but your credit score still feels the effects. If you miss two months of payment, you’re 15 percentage points behind from where you would be without any late payments. If you miss three months, your score is 30 points behind. Paying late isn’t only an annoyance; it can also have financial consequences for loans or mortgage applications.
2. Defaulting On Debt
Defaulting on debt, like failing to pay a credit card bill, can have a more significant impact than hurting your credit score. If you don’t pay your debt, the creditor may send the information to a collection agency. The collection agency can ruin your credit score by charging fees and interest on the original amount of the debt.
3. Not Using Credit Cards Or Loans
A person who doesn’t use credit isn’t building up good habits essential to building good credit scores. Generally speaking, an individual without any loans is likely to score low.
4. Applying For Too Many Loans At Once
A person who applies for too many loans at once (or applies to several loan companies) raises red flags since it appears that the borrower may be in financial distress.
5. Too Many Credit Inquiries
A lender will always check your credit score as part of a loan application process, but if you apply for too many loans or credit cards at once, you increase the number of inquiries on your credit score report, and your score will drop accordingly.
The more you know about what can hurt your credit score, the more likely you will build good credit. And paying attention to your payments and not missing deadlines are important ways to stay on track. Therefore, you should know what could hurt your credit to avoid it!