Top Five Factors That Will Affect Your Credit Rating

Although you might not need to use it at the moment, your credit rating or credit score is unfortunately one of those things that you need to be aware of if you are ever going to buy your own home or take out a loan for a car or for college. You will even come across credit scores when you go to apply for a store card or mobile phone. Consequently it can be quite important to make sure that at the very least you don't give yourself a negative credit score.

A credit score is a numerical value that is given to you according to a statistical analysis of your credit files. This score is then assigned to you on your records to represent your credit rating – in other words your credit worthiness. This credit rating will be used to decide whether a bank or lending institution gives you a loan, a credit card or a mortgage. In essence the bank will be deciding if you are worth making a loan to and if they will see a return on that loan based on your previous credit history. However, these days it is not only the banks that use it. As mentioned above, credit ratings will be also be used by phone companies, landlords, insurance companies, government departments and shops to evaluate your reliability. For this reason it is important not to ruin your credit rating unnecessarily. Below are the listed the five biggest factors in bad credit ratings:

(1) Foreclosure.

If you end up not being able to maintain the payments on your property to the point where you lose your house, this will do massive damage to your credit rating. Numerically, if you lose your house you will also lose 85 to 105 points (if your score is already quite good) or 140 to 160 points (if your score was already bad) off your credit rating. A good credit rating is considered to be around 600 points.

(2) Bankruptcy. Going bankrupt is just as bad as losing your home in terms of credit rating. If you end up having to declare yourself bankrupt you will also lose 85 to 105 points (if your score is good) or 140 to 160 points (if your score is bad) off your credit rating.

(3) Debt Settlement.

If you cant cover your debts or meet the expected repayments then sometimes you will have to go into debt consolidation and debt settlement whereby you make an agreement with the lender(s) to pay less or pay at a slower rate. This is obviously better than going bankrupt or taking out other bridging loans or payday loans, but it still leaves a mark on your credit score. Debt settlement will take off 45 to 65 points (if your score is good) or 140 to 160 points (if your score is bad) off your credit rating.

(4) Missed Credit Card Payments.

We've all done it from time to time, but did you know that it affects your credit rating? If you miss that monthly payment on your credit card you will lose either 60 to 80 points or 90 to 100 points if your score is already poor.

(5) Maxing Out That Credit Card.

Yup, we've all done this one too. But even if you're making the payments, just maxing out the card itself will cost you either 10 to 30 points or 25 to 45 points. Bet you didn't realise that when you bought that fine 42inch plasma!

Alex is a copywriter and blogger based in the UK. He currently writes a financial blog for the contracting sector, covering everything from mortgages to payday loans.

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