A credit score can affect your life in two ways. If your FICO score is high then the possibility is you will get the approval of your loan or credit card easily with a much-reduced interest rate. Your lifestyle became so easy. You will get the freedom of credit and enjoy life as per your wish. However, there is another possibility of just the opposite of this if your credit score is not good. So it’s better always to things that affect the credit score. Feel free to skip ahead if you already know this.
If your FICO score is low then the door to your happiness is close all around you. You will never get your dream house, even not in your lifetime. It also restricts you to access a product or services offered by the bank or other financial institutions.
What affects your FICO score
Your FICO score can split into few major factors like payment history (35%), Debt Burden (30%), Length of History (15%), Types of Credit (10%), and Recent Credit Searches (10%). I will discuss to you how this factor is effects your credit score. Feel free to skip ahead if you already know this.
Payment history: This means the bulk of your credit score is made up of on-time payments and how much available credit you have. If you pay all your dues, credit accounts, loans on time each month then you are in a good position. How you handle your debt and how well you pay them is the most important factor for your FICO score.
Debt Burden: Many experts will tell you to stick to 30 percent of your available credit. I recommend keeping your available credit at 94 percent. You should only be spending $6 for every $100 of available credit you have. If you want to successfully raise your credit to the best possible score. So in practice, your credit limit will be five to six times high than your usages limit to game the system. This lowers your credit risk and makes you someone lenders love to work with.
Length of your credit history: The length of your credit history contributes 15 percent of your FICO score. Normally it takes six months of payment history to establish a credit score. In general, the longer the history, the more effect on the score.
Effects of late payment on your score
You can consider payment history as a record of all the things you did wrong related to your credit and how you behave to your debts. Late payments are directly related to payment history. So late payment is the most common thing among the consumers and it creates a tremendous effect on your credit score. Suppose if you make a thousand-dollar payment for the various credit card but you forget to make a payment for $50 for a single credit card. It will hurt your credit score dramatically. The longer time you late the payment, the more effect on your score. So be care full about things that affect credit score negatively.
A single late payment could have a significant effect on your credit score if you hold a higher credit score. According to the FICO data, a 30-day late payment could hurt you as much as 90 to 110 points drop in your FICO credit score. Provided that you are an initial score of more than 780 and you never missed a payment on a credit card.
For example, a consumer with only two late payments history and an existing 680 FICO score could drop 60 to 80 point in his score after hit with a fresh 30 day late payment on any of his credit account. (one is two years ago a 90-days late payment on credit card account and the second one is approximately one year ago a 30 days late payment on an auto loan account)
How collection affect your score
If you fail to pay your debt before the 90 days late payment periods then your debt sold to a third-party collection agency or internal collection department. It will update your credits reports and your score will suffer.
Are you thinking about the collection may affect your credit score? Do not worry, we can help you in this regards and you can bring back your credit point. You may be surprised by what is on your credit report. It may be something from years ago like an old cable bill that you missed when you moved. That happened to me when I received a collection notice for $156 for an old Comcast bill from a house I’d moved from several years ago and didn’t even know about it.
That one collection notice on my report was driving my score down by maybe 100 points. That was an honest mistake. Every time when you see a collection account on your credit report, you feel uncomfortable in thinking that this account has a negative effect on your credit score. You will see this account in your credit report each time a collection agency reports debts to credit bureaus. Thus, these affect your credit score negatively.
However, there are some ways to get the thing sorted out. And you should always try to stay on top of all three credit reporting agencies. To avoid the damages of your credit score by the collecting account keep reading to find how the collecting agencies work.
Collections can be removed
The amount of collecting debt has no effect on your credit score. For your better understanding if you have a debt of $500 and it reduces your credit score by 50 points. A $1000 debt also reduces the same amount of point – 50 points from your current credit score.
There will be a major reduction in your credit point when the first times the collection account reports. After that, each additional collection will add a limited effect on your credit score.
Removing a collection account will usually boost your credit score. It’s always good to stay on top of all three credit reporting agencies. When you contact a collector for settlement, you should try to agree with them to a “payment for deletion”. There is a good chance it will help to boost your score. You have to check whether you paid the collection or remove the collection account, in both cases how many point you can earn.
In this regard you have two options: 1) A mortgage company can pull your credit in the last 30 days and they can run such simulation. or 2) you can sign up in a three bureau-monitoring site for www.privacyguard.com and run the analysis.
These scores are consumer score, not the FICO score but it helps you to decide which collection(s) should you try to pay or delete based on the potential score improvement. Of course, there may be another reason to pay a collection. But if you are looking for score improvement, follow the instruction above or call us – we always use these tools. Not all agencies will agree to pay for deletion.
When Charge off play the game
A creditor will charge off your account after 180 days of no payments when you do not pay anything to debt. A charge off has a highly negative impact on your score. It stays on your report for 7 years from the date it missed the payments.
The creditor often uses a third-party debt collector to attempt to collect payment after an account has been charged off. The original creditor may hold the account but assign it to the third party for collection. In this case, the original charge off with the balance will be reporting. However, a new collection account will report to your credit file if the creditor sells the debt.
Now you have two major negative items on the same debt, a charge-off, and a collection. It is a good idea to solve the problem with the original creditor before they sell the debt and the collection account shows up. The first collection can cost you 100 points negative if your credit score is in 700s. If you have lower scores and other negatives. Then the new collection has less effect on your credit score. But it is still significant. So it’s a good idea to take care of things that affect the credit score.
Hard inquiries may affect your Score
Applying for new credit may have an effect on your credit score but depends on each person’s credit history. In general, there is very less effect on your FICO score. One additional credit inquiry (hard) may result in five negative points in your score.
Hard inquiries are those, which generated when you apply for new credit and your lender request for your credit to a credit bureau. Even if your credit score changes by inquiry, it will list as factors that affect your credit score.
Therefore, Inquiries from potential creditors consider against you, but your own request does not any impact on your score. But you should always try to stay on top of all three credit reporting agencies. Do not apply randomly for your credit cards. Before applying to do your homework, Compare rates, terms and features offer by the lenders and then only apply. It is not just you, and it’s not your fault. It happens to all of us. One study showed over 34% of Americans had 620 or lower “Bad Credit” scores. Maybe they had a health issue, maybe they were in between jobs.