It may surprise you just how many things can affect your credit score. Your credit report is how lenders and potential employers can assess your financial responsibility and the risks that may be involved in trusting you with fiscal tasks. You can avoid any major pitfalls, however, by making yourself aware of the many things that can affect your credit rating and by practicing good credit habits.
The number one thing that will negatively affect your credit rating is a missed payment. You might not notice a large drop in your credit score, but the derogatory report from the creditor will alert any potential new lenders to your bad choice. Consistently late or missed payments will effectively destroy your chances for new loans, and could even cost you when seeking new employment.
Allowing an account to be written off may save you the hassle of creditors phone calls, but they will remain on your credit history for seven years. In addition, the account could be turned over to a collection agency, which will only double the amount of phone calls that you receive. Debt collectors also have the power to report you to the credit bureaus, and that will just add one more negative mark to your credit rating.
Bankruptcy will utterly devastate your credit report. You may think that it is your only option, but it is advisable to seek credit counseling before taking that step. A bankruptcy can wipe out your debt, but that does not mean that you are starting with a clean slate. Instead, your bankruptcy will remain on your credit report for ten years. It also alerts creditors and potential employers that you have a bad habit of getting into things over your head.
Credit cards can be useful in building a good credit rating, but many people abuse the power that a credit card can give. Do not be tempted to open multiple credit card accounts in an attempt to build better credit. Often, you will only end up with maxed out credit cards and no way to repay the debt. Your credit score takes into account the amount of credit that you have available and compares it to the amount of debt that you have built. A maxed out credit card does not offer a low debt to available credit ratio, and will result in a lower credit score.