Having a bad credit score is like being stuck with a bad president. It will take seven years to fix the former and eight to get rid of the latter, if he gets re-elected. The difference between the two is, you alone take responsibility for your credit score rating. And you suffer the consequences for your actions that led to the deplorable state of being labeled as a high credit risk because of your low score.
Prevent your score from going below 579. This number represents bad credit, according to Fair Isaac Corporation (FICO) or its competitor VantageScore. And it can make your life difficult. You’ll be turned down for loans, and if your loan application does get approved, you’ll be charged higher interest rates. The same is true for your credit cards.
So, before you reach this terminal stage where credit card companies and lenders avoid you, know what actions will pull down your financial trustworthiness and hurt your credit score.
Many people don’t really know which late payments can make a good or fair credit score turn bad. According to credit bureaus, utility companies do not report payments to them; hence, on-time payments will not add to your credit score. This is also true for payment for rent, cable and internet service providers, and cell phone companies.
But a late payment of more than 30 days on your credit card, student loan and car or home mortgage is reported to the credit reporting companies (TransUnion, Experian and Equifax) and can stay in your credit report for seven years. Payment history comprises 35% of a credit score. A late payment under 30 days has a fee but it may not hurt your credit score.
A charge-off is a credit card company’s term for a debt that is considered uncollectible. A charge-off is normally done when the debt is more than 180 days past due. It should be noted, however, that it does not free you, as the debtor, from the responsibility of paying. Charged-off accounts are reported to the credit bureaus and your credit score is severely affected as this failure to pay stays in your credit record for seven years. You will not be able to get another credit card or apply for loans and mortgages.
Bankruptcy is an option for individuals to discharge or repay some or all of their debts under the federal bankruptcy court. Not all debts however can be discharged by filing for bankruptcy. In general, the following can never be discharged in a bankruptcy: child support, some tax debts, debts owed to the government for unlawful acts and debts to a victim of your DUI charge. It is not uncommon for a person convicted of a DUI in Phoenix to file for a Chapter 7 after paying off a personal injury or wrongful death claim. Arizona is known to have one of the toughest DUI laws.
Bankruptcies stay on your record for 10 years and you can expect a lowering of your credit score from anywhere between 160 to 220 points.
Foreclosure and repossession
Basically, the two terms mean the same thing, which is the lender taking back possession of something from you for failure to pay a loan. Foreclosure refers to your house while repossession generally means your automobile. Defaulting on a mortgage home loan will allow the lending institution to take back your home and sell it to recover the money loaned. If you are delayed or miss one payment of your car loan, the lender can repossess the vehicle legally even without your consent or knowledge. Both foreclosure and repossession damage your credit score and stay on your credit report for seven years.