Credit scores are mostly the FICO scores, and they assess an individual’s creditworthiness and a lender’s risk in lending them money. A high score indicates their willingness to pay off the debt, and a bad score indicates the opposite. Also known as the credit level or credit quality scores, they have the ratings of poor, average, good, and best, according to the individual’s payment capabilities.
Several factors are considered for assessing the financial position of the borrower before lending money, and bad credit points significantly reduce the chances of getting credit in the future. This checklist will help you understand the reasons for a low credit score:
1. Not paying the credit card bills
If you continuously fail to pay up their credit card bills, you can generate a bad credit score. If you have several accounts that are yet to be paid, you may even generate a negative score.
2. Credit agreement failures
Before entering into a credit agreement, it is advisable that you read the terms and conditions of making the payments. This is because failing to comply with the credit terms can generate a lower score and reduce the chances of getting credit in the future. In addition, making late payments also contributes significantly and gets poorly added in your credit history.
Insolvency is one of the primary reasons for generating a bad credit score. Lenders are very hesitant and careful of lending money to an individual who has been declared bankrupt at any point of time in their life.
4. County court judgments
If you are paying your dues on time, you don’t have to worry about these courts. If you are issued a summon order by the county courts, it’s better to pay off within a month from the issuance date. These orders can negatively set back your score for 6 years, but you can refer to your report if the order has been wrongly attributed to you.
5. Premature closure of your business and loss of home
Pre-closure of your business hurts your credit score as it drives home the message that your credit is at risk, and you didn’t pay off your business debts. All the missed payments have a spiral decline in your report, and if you lose your home owing to nonpayment, that will also lower your score. These factors can generate an extremely bad credit score, and you might lose lenders in this process.
6. Non payment to collection agencies
If you are listed as a defaulter in paying off your collection dues, you are a candidate for a bad credit score. Many people skip payments on their credit cards and start paying the collection agencies first. This is also an incorrect way of dealing with the situation as your credit score will have already been affected.
Several other factors also have a huge impact on your credit score and can negatively impact your score, but these are some important ones. You can keep these basic factors in mind to help you regain control of your credit dues.