A credit report is an extremely important tool that lenders and other businesses use to determine your financial reliability. Obviously, everyone would like to be seen in the best light as possible and having a negative mark in your credit report can result in higher interest rates or even the rejection of a loan, credit card or mortgage. Following are some of the factors that can cause a bad credit score.
A credit score is a formula that varies among different credit bureaus, banks and companies, there is no set formula, however the following factors will usually have a negative effect on most credit scores.
Bills that Are Paid Late
If you have a few credit card bills, a car loan and a mortgage, make sure these bills are paid in time. While situations occur, for the most part if you have more than one or two late payments it will result negatively on your credit score.
Not Paying Your Bills or Not Paying the Minimum Amount
Obviously, if you are not able to pay your bills, this will result in a low credit score. Either not paying your bills at all or only partially paying your bills off can and usually does result in either a negative mark on your credit score and in some cases even legal action such as a judgment against you or even foreclosure on a home.
High Debt Level
While debt is usually measured according to your income, a rule of thumb is to not have debts that equal or are more than one third your annual income. For a person that has a 30K income per year, this amount is 10K, for a person that makes 100K per year, this amount is 33K. It is important to note that usually your mortgage or student loans are not factored in this amount, but are considered.
Having Too Many Outstanding Credit Cards
Another way that your credit card score can be lowered is by having too many outstanding credit cards. While it is extremely easy to have three or four regular credit cards and then a half dozen store credit cards, many lenders look at the amount of credit cards as high risk. The reason is that even though you have zero or a relatively low balance, if the credit line on these cards are 2, 5 or 10K each you can easily run up a bill at any time and thus will have less money to pay off your debts.