Your credit history plays an important role in your financial health. A lower credit score and negative credit report listings make it more difficult to obtain approval for a loan application when you are trying to finance a home, purchase a car, obtain a credit card or a personal loan. Equally, these items can make it more difficult to secure a job or an apartment.
It takes time and discipline to build healthy credit. Here are eight situations to avoid as you establish your credit.
Late Payments
Late payments will harm your credit score. Pay in full and on time to improve your score.
Loan Defaults
A loan can default immediately after a missed payment, or several months after missed payments, or for other reasons, such as allowing insurance on your vehicle to lapse. This will depend upon the terms in the loan agreement. If you are struggling to make payments, contact the lender before you default. You may be able to defer payments until you are more financially stable. A deferral will appear on your credit report as well, but it will not harm your credit as much as a default.
Car Repossession
Failing to make auto loan payments can result in repossession of the vehicle. A car repossession can remain on your credit report for up to seven years. If you can’t make a scheduled payment, contact your lender to see if you can defer payments and avoid a repossession.
Charged-off Accounts
A charged-off account occurs when payments are delinquent and the bank writes the debt off as uncollectable. This generally happens after months without payment. Charged-off accounts have a very negative impact on credit and should be avoided at all costs.
Maxed Out Credit Limit
Each account has a credit limit that should not be exceeded. Strive to use 30% or less of your available credit to keep your credit score healthy.
Bankruptcy
Many consumers view bankruptcy as an opportunity to start anew, but filing for bankruptcy will negatively affect your credit score and can remain on your credit report for many years. Seek alternatives before filing. Certain consumer protection laws may protect you without having to file for bankruptcy.
Lack of Credit History
A lack of credit history can also hurt you. Creditors will have no way to know your creditworthiness and whether or not you will be a risk. Young adults should open an account and pay off the balance in full and on time each month to build a healthy credit score over time.
Long Periods of Unemployment
A long lapse in employment and a high debt to income ratio can also hurt your credit.
Seek Legal Help
Flitter Milz is a consumer protection law firm that represents people that have become victim of inaccurate credit reporting, unfair debt collection practices, unlawful vehicle repossessions and “robocalls” from lenders, telemarketers and debt collectors. Contact Us to discuss your legal rights whether you have fallen behind on obligations or not.
