Credit Score No-Nos
Avoid Using or Establishing Credit: You are not doing your credit any favors by not establishing any. It is important to demonstrate your ability to smartly use credit and to re-pay promptly. It does you no good to have a blank credit slate which ends up reflecting a credit-avoidance and results in a lower credit score than one would have by wisely using credit and demonstrating good fiscal discipline.
Late Payments: A regular habit of making late payments, 30 or 60 days, means you are headed for trouble and just a single late payment of 90 days or more means the same. An occasional slip of a late payment for a few weeks or so can hurt your credit but only for the time the account is still due. Consistently late payments can be a signal to the lender that you are likely to skip payments in the future. Those bills that are paid late by three months or more are considered in “default”, will most likely go to collections and be categorized as a “charge off” by the lender. This means they have basically given up on collecting the debt. This sort of activity wreaks havoc with your credit score.
Personal Bankruptcy: A scream from the mountain tops that you cannot manage your debts! This one will remain on your credit history for up to 10 long years and while it is there it will continue to bring down your credit score.
Home Foreclosure: A real downer for your credit score, possibly lowering your score by 100-150 points or in cases where you enjoyed a high score previously, your score can incur a 200 point drop. Add the late mortgage payments on top of that and the entire scenario could possibly lower your score by as much as 240 points. Foreclosure is a seven year negative notification that will drag down your score and the same applies to giving your home to the lender in a deed-in-lieu of foreclosure.
Repossessed Vehicle: A repossession of your vehicle is a red flag that you have trouble being fiscally responsible. It makes no difference if the repossession is voluntary or not, it will negatively affect your credit. The entire ordeal of repossession, your outstanding debt, and a possible judgment if the lender’s sale fails to pay off the owed balance can each harm your credit history for up to seven years.
Credit Card Maxing: Almost one third of your credit score is based on the amount of debt you carry, specifically the debt-to-income utilization ratio. If you come close to your credit limit on your credit cards (maxing out) it will lower your credit score. Better to minimize your debt-to-income utilization ratio by qualifying for a lot of credit but using little.
Unpaid Taxes: Allowing your state or federal taxes to go unpaid can harm your credit report for up to 15 years making it virtually impossible to buy a piece of property until the tax lien is paid. Tax liens that have been paid stay on your report for seven years. Property taxes that are unpaid can result in the government seizing and auctioning off the property.
Debt Counseling and Consolidation: Be very careful, paying for professional debt counseling can signal to credit reporting bureaus that things are not good for you financially. Debt counseling will remain on your credit report for seven years. Using a debt consolidation company can have the same affect indicating financial woes.