1/9/2023
Taking care of personal finances can become complicated with so many daily commitments, bills and obligations. This is especially true for credit scores on Fico or VantageScore, whose formulas are not easy to understand.
Often, having a low score does not mean that you are an irresponsible person, but that you have simply been careless or made unintentional mistakes. This is because there are certain situations that you may not be aware of and that we will try to clarify in this post.
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Why does your credit score go down?
We are sure you understand that not paying on time will undoubtedly lower your score and affect your image with banks and lenders. However, there are other, lesser-known factors that can also lower your credibility. Let's take a look:
Not checking your credit history
While reviewing this report can be tedious, it's important that your information is accurate. It is not uncommon for someone to have reported your number by mistake or for you to have suspicious activity as a result of identity theft.
Any mistake should be corrected and that is why we recommend you to check the report of each bureau at least twice a year.
Failing to pay a fine or not returning a book
There are small details, insignificant at first glance, that leave you in a bad light when you apply for a personal loan. This is the case of traffic fines, fees or other penalties that you have forgotten or decided not to pay.
This can also happen when you don't return a library book, don't cancel the deposit and your account goes to collection.
Not using your new credit card
Oddly enough, this situation can lead you to lose points on your Fico or VantageScore. We know that there are many attractive offers that can lead you to apply for a credit card that you may not need.
However, not using it represents a vacuum of information about your behavior. Plus, every time you open a new account, you reduce the average length of your credit history, a key factor in calculating your score.
Canceling one or more cards
Similar to the previous mistake, but in this case instead of not using some of your credit cards, you decide to cancel them. This is also frowned upon. Foremost because you are lowering your credit usage, which forces you to spend less with your other cards.
Likewise, you are shortening your credit history, whose longer extension over time is to your advantage. Of course, canceling a credit card makes sense if you don't use it.
Guarantying someone else's loan
Being someone's guarantor or guarantor for various applications represents a big responsibility. A family member or friend may ask you to do this for a personal loan or credit card. However, this can negatively impact your credit score in three ways:
- You will have a new inquiry on your record.
- The account balance or loan size can raise your credit utilization.
- Each time the applicant misses an installment payment, this can be reflected on your record.
Asking for a credit increase
This usually happens when you don't have enough with the limit you have on your credit card and you want to have more available. The problem is that these requests in the U.S. involve a hard inquiry that takes away points.
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They may not be many, but at a given moment it can mean going from a good score to regular or from regular to bad, something that no one wants. Therefore, you should make sure that this request includes a soft inquiry that does not affect you.
Having a foreclosure
Defaulting on your mortgage, for whatever reason, is going to put you in a very unpleasant situation. Your lack of commitment to the terms of the agreement will cost you the property you wanted to buy, and will be a very negative remark on your credit record. Much like bankruptcy, this incident will affect your credibility for years to come.
Filing for bankruptcy
This action of last resort is one of the most likely to affect your credit score. Beyond how complicated and embarrassing this process can be, bankruptcy is an incident that stays on your record for up to 7 years.
As it is not hard to guess, your score will plummet and you will have to work hard to earn back the trust of lenders and financial institutions.
If you want to have healthy finances and get those approvals you need to improve your quality of life, you can't neglect your credit score.
Although building a good reputation can cost you up to 7 years of history, this can be destroyed by small mistakes or oversights. At Busconómico we help you with any doubts you may have on this subject and give you current information on the best rated products.
English: ¿Por qué baja mi puntaje de crédito?