Whether you make any purchases that require a great credit score or not, the importance of having a high credit score is equally high for everyone. Your credit score affects many aspects of your financial life. It can stop you from getting funding for a home, vehicle, college, or several other funding needs. It can also make you pay thousands of dollars more on payments due to lenders seeing you as high-risk. It can also keep you from getting a job or low-cost car health and car insurance.
With the importance of your credit score, it is astonishing how many people don’t give it any thought or effort. It would be best if you gave it some of your focus as part of the building of your financial independence. Ignoring it or letting it slide can be a too great financial setback. Paying down debt, building your credit score, and savings should all have your effort and attention when it comes to your financial health.
Because of the numerous ways your credit score can affect your overall financial well-being, it needs your attention. Knowing what your score is, keeping it high, and knowing why people have a low score, can help you avoid making the same mistakes. Here are five reasons people have a low credit score and how to avoid them.
Cosigning a Loan
Many lenders or banks will not extend a loan to someone considered high-risk or with a low credit score at all. But some lending institutions will consider a loan for a person with a co-signer. As the co-signer, you are using your financial pull and credit score to secure a loan for a person with a low score or no collateral or financial clout. This help should be avoided unless the person you are co-signing for is known by you to repay the loan.
Some people with a low score have reasons for the low score that have nothing to do with them being high or low-risk. There are times when someone hit unusually difficult times, which had an unfortunate consequence of lowering their credit score. If you feel the person you are co-signing for can make the payments and greatly trust someone. You can proceed. However, no matter the circumstances, if this is not someone you trust or are sure can repay the loan on their own, you should refuse to do it.
If you agree to co-sign, only do so if you can fully take on the payments if something should occur because if you both default, it affects both of your credit scores, and the creditor can even sue you for the default.
No or Slow Credit Card Payments
Credit cards are notorious for high interest and getting people into great debt because of high spending limits. Many who have low scores due to credit cards used their card to live outside their means. The problem is that living your life on credit will eventually catch up to you. However, if you decide to carry and use credit cards, make sure you make the payments on time. It would be best if you also doubled up on payments or pay beyond the minimum payments.
If you hit financial hardships, call your credit card company, they will work with you.
Too Many Debts or Loans
Many people believe that if they are paying on time and in full, having multiple loans or lines of credit will help boost your score. While it is true that making good payments will boost your score, if you have too many, it can end up hurting your credit. Lenders will not lend more money to someone with multiple credit cards or loans, even if they have a high credit score. If something happens to you financially, you will likely default on your loan if you are spread too thin during the difficult times.
No or Slow Payments on Loans
To have many things of value, such as a home or car, you have a great credit score. However, just as you have done for credit cards, if you must carry a loan, make sure you not only pay on time, you should make more than the minimum amount and work to pay the loan off early, which could save you hundreds of dollars in interest.
Data or Identity Theft
Many people feel immune to identity theft for various reasons. Identity theft happens to people of every walk of life and financial status. While this is something out of your control, there are ways to prevent it or recover from it. It would be best if you were careful what you put online, make your passwords impossible to figure out and use protected networks. Also, when in public, be aware of your data sharing.
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