Your credit score is a number based on how you handle your credit cards, loans, car payments, and other forms of debt.
Read more: What are Credit Scores, and Why are they important when buying a house?
Naturally, a person’s credit score determines the likelihood of obtaining favorable financial terms and conditions. A low credit score results in problems like trouble getting a loan, fewer renting options, and higher insurance costs. That is why a low credit score is frustrating to those who have made bad financial decisions in the past. A good credit score may help you qualify for better rates all around. So how will your bad financial decisions affect your credit score? Let’s take a look at some examples.
Table of Contents
Paying Your Bills Late
Your credit card payment is late when you do nor make at least the minimum payment by the due date. This can happen if you forget to pay or your payment does not go through. If this happens, it will take a toll on your credit score. It also means that you are borrowing money at a higher interest rate. If you default on other loans, this also shows up in your credit history.
Making Minimum Payments
The minimum payment is the least amount you should pay on your credit card. If you just make the minimum payments, it will take months or even years to pay off your balance. In addition, the more it takes to pay off your balance, the more interest you are required to pay. This will lead to an increase in overall balance.
When your credit card balances climb, so does your credit utilization ratio — the sum of all your balances divided by the sum of your cards’ credit limits. High balances can seriously damage your credit because your credit utilization ratio is a crucial component of your credit score. As a result, it is more difficult to be approved for the best credit cards and affordable loans. Due to the fact that companies and landlords frequently check applicants’ credit, it may potentially damage your ability to get employment or rent an apartment.
Applying for Too Much Credit at Once
The lender asks for credit reports whenever you want to take out a mortgage. A hard inquiry is recorded in your credit file each time this happens. These inquiries remain in your file for up to two years and can lower your credit score. A large number of inquiries in a short period may indicate that your financial condition is not good. Keep in mind that your credit score is intended to demonstrate your likelihood of repaying loans. Your score will decrease if you show that you cannot manage your credit.
Taking Out Cash Advances on Your Credit Card
A cash advance is a loan that you can get from your credit card issuer against your credit card’s available balance. Taking out a cash advance would not be recorded in your credit report, but it can cause your credit score to decrease. How? You add to your credit card debt by getting a cash advance. This can increase your credit card utilization ratio, lowering your credit score. In addition, getting a cash advance provides you with high-interest rates and fees.
Opening New Accounts
Opening a new account might affect your credit scores, just like any change to your credit history. For example, applying for a loan. By applying for a new account, an inquiry will show up on your credit record, and this record will remain on your credit for two years. Your credit scores can experience a minor decline due to that inquiry because it indicates a potential new debt.
What Should I Do if I Have a Low Credit Score?
Many people have made bad financial decisions, especially regarding their credit. If you have made one or more of these negative financial decisions before and now come up with a low credit score, you should think of repairing your credit. Probably you will think about this when you want to take out a mortgage and buy your own home. The Mortgage Ready Program is a good choice for you in this case. We can help you to repair your credit and purchase your favorite house.
Concluding Remarks
The most important thing to remember is that we are all unique. Bad credit decisions can be a result of any number of factors. But the impact will be different for everyone who makes them, depending on your financial situation. Still, some areas in your life, like where you live and if you have a job, will obviously be more impactful than others, but those are things you can control. With bad credit decisions, it is best to assess how they affect your overall financial situation and determine if there is anything you can do to correct them moving forward. For the first step, sign up here!
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