Having a credit card is not all about having access to money; it makes up an essential part of a person’s financial history and one of the things employers always look out for when hiring new staff. It is not all about securing a job, but having a good credit history is equally essential when there is a need to obtain an apartment or a car as well. Some people unknowingly do things that can negatively affect their credit card score.
Here are some things that can affect a credit score severely.
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Late payments
source:nytimes.com
A credit card history is significant, and makeup thirty-five percent of a person’s credit score. It is crucial to make all credit card payments on time to maintain a good credit history and obtain excellent ratings. That way, the credit score will instead witness an increase and not a decrease.
Failure to make payments
Some people always make the mistake of not paying their credit card bills, which earns them lousy credit scores. People who face such issues tend to have their accounts charged off a few months later, which is not suitable for the report.
Charge off
source:cnbc.com
When a creditor realizes that the person has no intention of repaying their debt, they usually have no option than to charge off their accounts. Charge offs can harm the credit score of a person’s account.
Collection accounts
source:investopedia.com
With a collection account, creditors can lease or vend aberrant debts to any third-party debt collectors who can try to recover debt payments. That is a common step the creditors take to charge off people’s accounts.
Collection agencies can take extreme measures to recover debts, including lawsuit threats, calling at job sides, or even calling the debtor’s family members. Those who are surprised can always get to read more info about what collectors cannot do to know their rights.
Failing to repay a loan
Failing to repay loans has an impact on a person’s credit score the same as a charge off would. It merely goes to prove to potential finance firms that the person is a total credit peril, and working with such a person makes the company stand at their loss.
Filing for bankruptcy
Having a bankruptcy case is usually the last straw a person can ever draw to bring their credit scores down. Bankruptcy sends signs of irresponsibility or the impossibility of meeting up with payment plans. Thus there is no possibility that a company would want to continue working with anyone that has a bankrupt case.
Foreclosure
source:investopedia.com
Just like a loan default or failure to repay a loan, foreclosure equally has adverse effects on a person’s credit score. It merely lets creditors know working with someone of this nature can end on a wrong note. It reveals the inability to meet up with payments.
Losing something valuable like a home has negative impacts on credit scores since all missed payments or non-payments are documented in the individual’s reports.
Judgments
Unpaid judgments have high negative impacts on credit scores than paid evaluations. Most creditors often go through reviews before working with anyone in order not to work with someone the government had to force to repay their debts.
What are the different types of credit?
source:nytimes.com
Not all credits are the same, and there are different types of credit. Getting acquainted with varying types of credit helps people to be cautious and make the right choices as far as obtaining a sound credit card.
Secured credit
With secured credit, creditors can be sure of recovering their funds via the asset the debtor possesses. Debtors need to put a lien on their assets; the claim shows the creditor can have the asset should in case the debtor cannot fulfill their terms of the agreement or repay the loan. Car loans, mortgages, and home equity loans fall under the easily found types of secured credit.
Unsecured credit
With unsecured credit, it is based on trust and words where the debtor promises to return the debt on a particular date. Things like credit card, medical, and utility bills all fall under unsecured credit types.
Revolving credit
source:nytimes.com
There is always a set amount that a debtor can have access to. The debtor can make use of the funds as often as they feel necessary, but the money has to be repaid an agreed minimum amount on the outstanding balance monthly. Some examples of revolving credits are; credit cards and home equity.
Installment credit
With installment credit, creditors always lend specific sums of money for an agreed period, and the money can be repaid in installments, but the amount has to be fixed. Mortgages, car loans, and student loans fall in line with installment credits.
There is more info on nova credit as to why getting a good credit score is essential or knowing the different types of credit.
source:cnbc.com
Conclusion
Repaying credit loans affect one’s credit history and score. Failure to repay loans timely has effects on one’s credit score. Before taking loans from a creditor, it is essential that one knows the details involved with the credit card and make sure it is within their payment plans. Being versed with the different credits gives people the chance of not going above their means and sticking to what they can pay.
Having a good credit history is something that people have to strive for as it plays significant roles when seeking employment, house, and car applications. Most companies always make sure to check the credit history of every person they work with, so they avoid any scandal or stress in recollecting the funds that were given out.
Above all, it is crucial to use the funds collected wisely and not spend on irrelevant things as it can lead to more debt. People who can manage their funds will not have so many loans to repay.