The Course of a Bad Loan Credit Score

A bad loan credit score doesn’t happen overnight. It’s the result of several poor decisions that, unfortunately, compound over time, negatively impacting your financial well-being and preventing you from achieving your short- and long-term goals.

If you’re behind on payments or otherwise struggling to keep up with your loan payments, a bad loan credit score may be looming in your future unless you take action now to address the situation.

1) late payments

If you can’t make your payments, your credit score will drop. That’s the first step on the course of a bad loan credit score.

Late payments are damaging to your credit rating and hurt your ability to get approved for future loans.

The damage is compounded if you continue to miss payments, so it’s important to address any financial difficulties as soon as possible.

You can dispute errors with your credit report or request a temporary delay in payment through a lender, but these options aren’t always successful.

One way to regain control of your finances is to find out what caused the missed payments in the first place – such as an unplanned expense or miscommunication and then work on addressing that issue while also making sure all other bills are paid on time going forward.

Another solution would be to reach out to a nonprofit organization like Lifeworks Financial Solutions, which provides free advice and access to financial education programs.

Lifeworks can help you come up with solutions that are tailored specifically for your needs.

2) high balances

If you have high balances on your credit card, this will be calculated as part of your credit score.

This can lead to higher interest rates and a lower credit limit. However, if you pay off the balance in full every month, then it does not affect your credit score at all.

A better strategy is to always pay off the balance in full or set up an automatic monthly payment schedule through the bank so that you do not have to worry about paying bills each month.

One way to get back on track with your credit score after you have experienced any type of hardship is by enrolling in a debt management plan (DMP).

DMPs are designed to help people improve their finances by establishing a budget and taking steps towards paying down debts.

They often offer counseling sessions for those who need assistance with budgeting skills and money management strategies.

You should find out if enrolling in a DMP will be beneficial for you before signing any agreements.

3) collections

Not knowing what your credit score is can make it difficult to take care of your finances.

A bad credit score can make it impossible for you to get loans and mortgages or even find employment.

Knowing what you’re working with and how to improve your score will help alleviate the stress.

It’s not always clear-cut as to why someone has  low credit score, but there are ways to work on improving it.

One way would be getting a secured credit card. Secured cards are more affordable than unsecured cards, which means that people who have low incomes might have better luck with these cards.

It also offers an opportunity for people with less than stellar scores to start building up their scores by paying off the balance each month on time.

The downside of a secured card is that if you don’t pay back the loan within a certain amount of time, like in three months, then you could lose any money that was put down as collateral.

The goal should be to move on from this type of card once your scores are high enough and then apply for an unsecured credit card.

Another option would be rebuilding your credit through a cosigner agreement.

4) charge-offs

If you make late payments, your credit score will drop. If you do not pay off the balance on your account and it goes to collections, the delinquency stays on your credit report for seven years.

The length of time delinquent accounts stay on your report is determined by state law and may vary depending on which state you live in. In addition, if any payments are made on an account that is sent to collections, this too will affect your credit score.

A collection account will be deleted from your credit history after seven years. Your FICO® score also drops when your debt-to-credit ratio becomes more than 30%.

You can monitor your debt-to-credit ratio by looking at how much revolving credit you have versus how much revolving credit is available.

To help maintain a healthy ratio, use no more  30% of available revolving credit.

If you need to increase your limit, try calling the card issuer and asking them nicely to increase your limit.

This strategy should only be used as a last resort because there is always risk involved with opening up additional lines of credit.

Your credit score will drop slightly every time you apply for new lines of credit, so don’t go overboard with applications!

5) bankruptcies

If you’re struggling with debt and think bankruptcy may be your only option, it’s important to know that filing for bankruptcy does not remove all types of debt.

It can stop creditors from trying to collect the rest of what you owe them, but it will not erase your obligation to pay back the money you borrowed before filing.

Bankruptcy can also have an impact on your credit score.

If you ever want to buy a home or car again, having good credit is essential. Generally speaking, if you file for bankruptcy your credit scores are likely going to take a significant hit and it could take up to 10 years before they recover.

But there are other ways to rebuild your credit rating as well.

For example, if you qualify, some lenders offer secured loans that let you borrow against the equity in your home.

Other options include taking out a personal loan from a bank or credit union and making payments on time each month; applying for an unsecured loan from a bank

becoming an authorized user on someone else’s account (if they’ll agree); opening up a new account (like a checking account) and making regular deposits; even getting another part-time job and making sure to use your card responsibly when possible.