Consumers want to shield their credit score from damage, but you may not know some things that will kill your credit score faster than you could imagine. This two-part series examines six top credit score killers. You can read the first three in part one right here. Below is part two. These are important to know so you can avoid unnecessary hits to your credit score.
#4 Missing Just One Payment
You might think that missing just one payment is no big deal and for something that doesn’t report to the bureaus like your gas or cable bill, it might not be a disaster. You can catch up on the past due and move on from there. But for anything that reports to the credit bureaus including your credit card, mortgage, or auto loan, missing just one payment is a big deal to your creditors and your credit score.
The higher your credit score, the greater the fall if you miss a single payment. One missed payment can cost you between 60 and 110 points (or more) on your FICO score. That is a devastatingly large drop. Bear this in mind and don’t ever think “missing just one payment won’t matter.” It matters a lot. Subsequent missed payments have an impact as well, but none so much as that first one. Pay your bills on time!
#5 Tax Liens or Judgments
The IRS doesn’t report to the credit bureaus unless you fall so behind that they have to garnish you or take out a lien. If the IRS reports you to the bureaus, you can see a drop of anywhere from 50 to 200 points. With a tax lien on your report, you can be refused new credit or credit line increases. If you work out a deal to pay the tax and remove the lien, your score will come up, but not as much as it dropped.
Similarly, if a creditor takes you to court and wins a judgment, that will also wind up on your credit report and will stay there from seven to ten years from the date it was issued. The longer the time after the filing, the less impact it will have but it does lower your score and can cause creditors to think twice before granting you approval. Negative public records including liens and judgments are always killers.
#6 Carrying High Balances
This one can be a shock for some consumers. You can pay your credit card bills on-time every month like clockwork and see your credit score drop. You can pay more than your minimum amount due each month and do it on time and still see your credit score drop. Why? It’s called utilization. Nearly one-third of your credit score is based on your credit utilization which is an indicator of responsibility.
Some financial blogs will tell you that you’re okay as long as you don’t exceed 30% utilization, but that’s not a hard and fast rule. But if you go over that, your score can drop every month that you’re over-utilizing your credit lines. Utilization is the amount you owe on your credit cards divided by the total amount of your credit lines. If you routinely keep cards close to the limits, your score will suffer as a result no matter if you pay promptly and never max out your credit cards.
Be aware of these credit score killers so you don’t let your FICO score drop! If you’re coming out of bankruptcy, it’s time to rebuild your credit score so you can have a better financial future.
Contact Credit Score Keys today for a consultation on improving your credit score after bankruptcy.