Credit scores are one of those things that are difficult to build and easy to destroy. Building your credit score is comparable to building trust with a potential loaner; they need to know that at some point, you will pay them back.
Banks and other such institutions determine your credit score based on different credit information. Such credit information may include: bounced cheques, any accounts that may have been sent to collections, judgments (debts owed due to lawsuits), debt management programs, consumer proposals (which are legal agreements set up by an insolvency trustee between you and your creditors where the latter agrees to let you pay off a percentage of your debt), and bankruptcy.
Some of the aforementioned negative credit information will not only bring down your credit score, but they will also affect your credit score for different amounts of time.
For example, judgments generally stay on your credit report for six years. Consumer proposals are usually kept on file for three years after you have paid off the debts. Bankruptcy is generally removed from your credit report six years after the date you are discharged. If bankruptcy is declared more than once, however, this information will appear on your credit report for 14 years.
Other things that can lower your credit score include “maxing out” credit accounts and missed or late payments. The latter two may seem inconsequential, but they are the most common ways in which your credit score can be lowered.
So what are some ways in which you can ensure that you don’t lower your credit score?
For starters, it’s important to ensure that you pay off every credit card bill on time. This is one of the easiest ways to make sure that you don’t compromise your credit score. Setting a reminder on your phone or computer can help you remember to make payments. In addition to that, many people also limit themselves to only one credit card to ensure that it is paid in full and paid off on time. This will also better your chances of avoiding interest on top of your balance.
What’s even worse than being late on a payment, of course, is not paying at all. For every month that your credit card is not paid off, you increase the likelihood of having the account charged off. This means that your creditor has assessed and decided that you will most likely not pay off that debt, and you will no longer be able to make additional purchases on the account. Usually, creditors charge off accounts when they have not been paid on time for six months.
One final oft overlooked factor that can lower your credit score is applying for multiple credit cards or loans in a short period of time. By keeping your applications to a minimum, you can reduce your chances of lowering your credit score.
With all this said, bad credit isn’t a life sentence, and there are certain institutions that will base their loans according to other factors beyond your credit score.
Climbloans are here to help individuals facing challenges with their credit score. We start by putting you on a savings plan towards achieving your financial goal. Every month of being on the plan, we send positive payment history to both Equifax and TransUnion and your credit starts to rebuild.