When you think of ways to wreck your credit score, you might think of major events like foreclosure on your home or repossession of your vehicle. But there are other actions that can kill your credit score. You might not be aware just how significant the impact is on your report and FICO calculation for these incidents. This two-part series examines six credit score killers. Check out the first three now.
#1 Errors and Fraud
You can do absolutely nothing wrong and still see your credit score wrecked. How? Errors and fraud can cause big problems. Errors are misreported items. For instance, a credit card issuer might report a late payment when you paid on time. You might pay off a loan, but the lender shows a lingering balance that’s aging and appears to be past-due. You should monitor your credit report regularly to ensure there are no mistakes.
Fraud occurs when someone steals your identity, opens an account in your name, or otherwise uses your credit information for profit. You’d notice if someone steals your credit card and starts running amok with it, but if someone opens a new account in your name, you might not know until you start getting collection calls for unpaid debt. Regularly monitoring your credit report helps alert you to identity theft and other issues.
#2 Accounts in Collection
Unpaid debt usually triggers collections activity and this can wind up on your credit report. On a monthly basis, things like utilities, your cell phone, and medical bills don’t report to the three credit bureaus – Experian, TransUnion, and Equifax. Years of on-time payments won’t help your credit score no matter how long you’ve been a good-paying customer. But if you don’t pay, everything can change.
If you don’t pay a balance for a utility, medical bill, or other debt that doesn’t usually report to the bureaus, that can change if they must put your account into collections. The collection agency will record an item on your report that can drop your score by up to 100 points and can stay on your report for up to seven years. Don’t skip out on bills, even ones that don’t usually go on a credit report.
#3 Maxing a Credit Card
The second biggest factor in your credit score, after your payment history, is your credit utilization. This is determined by looking at the percentage of credit card debt you have outstanding versus your total revolving credit lines. If you have $2,000 total owing on credit cards and $10000 total in credit limits, that’s a utilization of 20% (2,000/10,000=.20). That’s a bit on the high side. You should never exceed 30%.
However, the ideal is 10% or lower. Maxing out even one credit card can push your utilization too high and into the danger zone. This can cause your credit score to drop every month that you’re at the limit. Plus, if you go over the limit, you can be charged a fee plus all the interest you’ll pay. That can put you into a downward spiral of a plummeting credit score and a financial mess.
What Can You Do to Clean Up These Problems?
If you’ve chosen bankruptcy to deal with your debt, many of these items will be discharged and you’ll get a clean slate. From there, you can gradually begin to rebuild your credit. For those dealing with credit issues but not turning to bankruptcy, it’s a matter of clean-up. If you missed a payment, make it ASAP then call the creditor to see if they will cut you a break and not report the delinquency.
To avoid errors and fraud, sign up for a free or low-cost credit report monitoring service. You’ll be alerted when new accounts are opened or there are inquiries for your credit report. If you didn’t apply, you’ll know right away you were a victim of identity theft and can shut it down. Regularly scanning for errors is made easier when you’re using a monitoring service as well.
To find out more about rebuilding your credit after bankruptcy, contact Credit Score Keys today for a free consultation. Call 919-495-2365 to speak to a credit expert. Be sure to come back next week for part two of this series on credit score killers.