A question that many consumers ask about what hurts your credit score most frequently is, “What is a charge off?” With the way the financial industry is today, many people are finding themselves in situations where they have overdrawn on their checking or savings accounts. This is the most damaging thing that can happen to your credit score because it shows that you do not pay your bills on time. Now, there are some circumstances in which this will not hurt your credit score to the point that it will require a loan to recover from. There are also situations where even just one late payment on your credit card can severely damage your score.
The number one problem that negatively impacts your credit score is when you consistently borrow more money than you are able to pay back each month. Now, if you are like most people, the answer to that question is, “frequently.” If you are in this situation, the good news is that it is possible to reduce the amount of available credit that you must borrow in order to make your monthly payments. The best way to do this is to simply pay all of your bills on time and try to keep your debt to credit ratio at 30% or less.
One reason that this may be necessary is due to a slow turn around in your bill paying behavior. Now, there are two different types of reports that you can look at when determining your credit score. The first type is the credit bureaus. These reports contain information about the outstanding bills that are on your current bill payments record. The second type of report is the collections department’s reports.
If you find that the collections department is reporting delinquent accounts and they are reporting late payments, then you will want to take action. What hurts your credit score the most is incurring late fees and penalties for non-payment. If you are able to catch up those accounts before they are due, it will be seen as an effort to correct your payment behavior, and this counts as a positive action on your part.
Another thing that negatively affects your credit score is the number of inquiries that are made each month. Each time that a lender does an inquiry it is recorded as a request for credit. The purpose of making inquiries is to attempt to determine if you are creditworthy enough to be given an account. What hurts your credit score the most is having too many inquiries, so if you can decrease the number of inquiries that you make each month then it will have a significant impact on your overall score.
The final thing that hurts your credit score is a history of missed payments on accounts. Having seven years of available credit is far better than having three years. The reason that this is true is that the longer you have been making payments on your accounts the better your credit score will be. So, if you want to keep your credit score higher than it needs to be, you need to make sure that you keep your credit report up to date and make all your payments on time.