3 Factors that affect your credit score

If you have been paying regularly for a long time, and have just missed out on one or two payments, then the chances of your credit score declining are minimal. However, if the debt turns to bad debt, it is a whole different story. Bad debt means you have not been able to repay your dues for a while and might need to check for a settlement to pay the dues back. It might have even reached the point where the creditor has acquired the services of a debt collection agency to help get the amount back from you. Along with bad debt, there are several other factors that can lead to a decline in your credit score. Some of which include:

Length of credit history

You can build a good credit score if you have been taking credit or debts and paying them back on time. Even a short credit history is alright as long as the debt on your name is not too much and you have been paying back dues on time. If you have been taking credits from different places for a long time but haven’t been able to pay them back, your debt amount piles up. This can lead to a fall in your credit score.

Payment history

Having an overdue debt on your name shows any lenders or credit bureau that you find it difficult to pay back the credited amount. Since a major aspect of your credit score is based on how well you return the receivables to the creditor, any pending debt on your name can act as a red flag against you. Overdue debts on your name not only reduces your credit score but also makes creditors and lenders wary of giving you any more credit. This is bad news if you do require financial help later. It is even worse if you have a bad debt in your name and you have negotiated a settlement for it. When there is a settlement, it means there has been a change in the original agreement made between the lender and debtor. For this kind of debt, the creditor might even employ debt collection services to get in touch with you regarding the dues.

Types of credit

The debt on your name could be a result of any loan or credit card use, such as home loans, auto loans, student loans, mortgages, and personal loans, among others. A good mix of different kinds of credits paid on time can positively impact your credit score as it shows the lenders that you are capable of managing different credit products responsibly. If you are looking for credit, always make sure to take a small amount from trustworthy financial aides, after checking their business information reports. The amount you take should be big enough to cater to your needs but also small enough that you can pay it back promptly. This should help you build a high credit score in no time.

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