The Associated Press reports a new finding by FICO, Inc. that 25.5 percent of consumers, or nearly 43.4 million people, currently have a credit score of 599 or less. With a quarter of the nation suffering from credit card debt and poor credit scores, it’s obvious that many are not aware of the number of factors that can lower their credit scores.
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You can probably list several things you know can contribute to decreasing your credit score, but it’s unlikely you can name them all. In fact, a list of different things that impact your credit score negatively has been compiled by CreditReport.com, and among them are late or missed payments, bankruptcy and periods of unemployment.
Did you know that these common occurrences harm your credit? Here’s a closer look at how these situations are a threat to your credit.
You may be willing to pay that late fee every now and then if it lets you skip another bill for a few extra days. For some people, $20 or $30 isn’t a big deal. Plus, the Fed is making it even easier to rationalize paying a late fee by approving new credit card restrictions, including a late fee cap of $25.
So why not pay bills late and fork over the extra fee when budgeting gets a bit messy at the end of the month? Go ahead if you don’t care about your credit score.
If you do care, you need to pay every bill on time. Linda Stern of CBS Money Watch details some of the additional regulations that go into effect on August 22, 2010 as part of the CARD Act, but advises that you still need to protect your credit even if the new laws make it easier to skip payments. Stern writes, “Even with new limits on late fees…Late payments will hurt your credit score and that, in turn, will cost you more on everything you borrow.”
Filing for bankruptcy is a huge decision that will have a lasting effect on your credit. As Consumer Credit Couseling Services (CCCS) explains, “Credit that you are able to obtain may be from sub-prime lenders that carry very high interest rates. Plain and simple, this translates to costing you more money for future credit transactions.” If you want to keep your credit intact, you can’t let your finances reach the point of bankruptcy.
Even so, all is not lost if you must file. Bankruptcy ruins your credit in the short-term, but the damage is somewhat reversible. MSN Money’s Liz Pullam Weston details an example of Ken, who filed Chapter 7 liquidation after he accumulated more than $20,000 in credit card and other unsecured debt. Then, after four years, his credit score bounced back up and ranged from 655 to 719, which are just below what one would need to get lender’s very best rates.
Many Americans have found themselves without a job after finally graduating with a four-year degree or even having already put in decades of hard work. With no job, paying the bills gets a lot harder and it becomes necessary to file for unemployment benefits.
While unemployment often leads to lower credit, it’s a common misconception that one’s unemployment status negatively effects their credit score.
Experian’s “Ask Max” section, a credit advice forum, features a question regarding this concern: Will filing for unemployment be reported on your credit file, and will it affect future credit consideration?
Max wraps up his answer to the above question with this, “The impact of unemployment could be reflected in your credit report if you are unable to pay your debts as a result of the layoff, but the unemployment filing itself will not become part of your credit history.”
Filing for unemployment does not lower your credit score and is not reported by credit bureaus. The reason unemployment is a common credit threat is because you are forced to rely on a reduced income to pay for expenses and often must rely on credit cards that you can’t afford to pay off.
Having a good credit score is essential for your financial well-being. Once you have bad credit, it’s tough to repair it, but maintaining excellent credit from the start doesn’t have to be hard at all. In order to protect yourself from these common credit threats, practice the type of behavior that keeps your finances in good standing: Don’t spend more than you can afford to repay and keep an emergency savings account to buffer against unexpected expenses or loss of income.
|700 - 750||Good|
|640 - 700||Average|
|580 - 640||Poor|