It’s no secret that the credit score affects nearly everything: from getting a mortgage to renting an apartment. It’s also one of the most mysterious things about personal finance. But if you’re like most people, you don’t know exactly what makes up your credit score, and that could actually ruin it. Here are five factors that can negatively affect your credit score.
Medical bills
Medical debt is a major factor in your credit score. You may have heard that medical debt does not show up on your credit report, but that’s incorrect. Your medical bills can affect your score, even if they’re paid off or the result of an insurance claim. Excess medical bills can also lead to a negative credit card balance. You might be wondering, “Why is my credit card balance negative?” and the answer will be the excess bills you spend on an emergency medical situation.
If you’re struggling to pay off these bills and don’t know where to turn (or if you’re overwhelmed by student loans), consider consulting with a financial counselor who can help you find relief free from fees and interest rates.
Bankruptcy
Bankruptcy (or other collection accounts) can be a definitive factor in your credit score.
It’s important to remember that while bankruptcy can lead to a drop in a credit score, it might not necessarily mean that you’ll be denied loans or insurance policies altogether. Many lenders look at each application for its individual merits rather than using one snapshot of information about an applicant’s history as the only measure of risk.
Student loans
Student loans can be a big factor in your credit score, but they’re also not dischargeable in bankruptcy. If you’re considering filing for bankruptcy, you may consider other options before resorting to this last-resort option. While you might be able to discharge some other types of debt, student loans are rarely discharged by a court and will likely stay on your record for years. If this concerns you and could impact your ability to qualify for loans or mortgages later on in life, then you must take steps now so that this doesn’t happen!
Debt collections
If you don’t pay your bills, creditors may file a collection notice against you with the credit bureaus. The notices will go on your permanent file, so they’ll stay there even if the debt has been paid or settled.
This can seriously lower your credit score and make it difficult to get approved for loans or mortgages in the future.
Taxes
Your taxes can be a big problem for your credit. You will be charged interest and penalties if you don’t pay your taxes. If you don’t pay your taxes, the government can sue you for non-payment and even take away money from your paycheck or bank account as payment. This is serious business, and it’s something that can affect your credit score.
The best way to avoid these problems? Make sure that you are keeping up with all those financial obligations that could affect your finances in the future.
After you understand the basics of calculating your credit score and its effects, you can start making changes to improve it. You may want to talk with a financial professional or credit counselor if you feel overwhelmed by your debt situation or if you have questions about how to manage your finances best.
