If you’ve ever received a phone call from KLS, you were probably informed as a courtesy that your credit report has the potential to be negatively impacted by any unpaid balances. While the majority of our consumers appreciate the heads up, we also hear the relatively common retort of, “go ahead – I don’t mind!” If you put yourself on the receiving end of this hypothetical call from one of our collectors and find yourself vigorously nodding along with that statement, I’d like to go into more detail and outline the extent of the impact that negative credit items can truly have.
While credit reporting is our last and most undesirable resort (we swear!), it is a nearly universal practice amongst collection agencies. If you check your credit score and do happen to see a negative mark, don’t ignore it! Lenders use your credit score as a way to assess whether or not you may be at risk of defaulting on your payments, and, while it goes without saying, they are also much less likely to conduct dealings with borrowers who have a heightened credit risk. Before you understand the effects of a low credit score, you must first understand just what a credit score is: your credit score is a number between 300 (the lowest possible score) and 850 (the highest possible score), determined by a number of financial factors, that can provide lenders with a clear, numerical representation of how likely you are to pay them back. Let’s take a look at a few factors that can result in a low credit score:
1. Not paying your bills on time.
While most of us have missed a payment or two in our time, try your hardest not to make a habit of it. Late payments are undeniably one of the most common causes of a decreased credit score.
2. Filing for bankruptcy.
It may seem obvious, but filing for bankruptcy has a huge impact on your score – dropping it by as many as 240 points and remaining on your credit for up to ten years.
3. Signing up for too many credit cards.
Don’t be tempted by the free offers and supposed perks that come along with new cards! Even if you don’t find yourself in credit card debt, potential lenders may come away with the impression that you are more likely to end up in such a situation with all of that credit at your disposal.
4. Settling debts vs. paying in full.
Quite often, consumers will ask us if they are able to settle their debts rather than pay the full balance. While this can sometimes be an option dependent on our client’s needs, it is one we will always heavily discourage – not only will the information remain on your credit score as settled rather than paid in full, KLS handles paid accounts in a uniquely consumer-friendly manner.
5. Having an account reported in collections.
Once an account has been with a collection agency for an extended period of time, it is very likely to be reported to at least one of the three major credit bureaus. Keep in mind – the higher your credit score, the more points you are liable to lose.
Now that you’re aware of what can potentially lower your score, let’s discuss what can result from that number. A low credit score can make it extremely difficult to obtain loans (or result in far higher rates on the loans you do qualify for), be approved for a credit card or an apartment, close on a home, and even prevent you from joining the military or landing a job that requires any level of security clearance. If you are married and you and your spouse hold a joint account, a negative mark on one of your credit scores can very realistically affect the other party, even if they had nothing to do with the original debt.
Being aware of the causes of poor credit (as well as the side effects) can provide you with yet another tidbit of knowledge to use in your journey towards financial satisfaction. Sometimes we feel like broken records when we repeat the following over and over, but it never stops being true: KLS is always here to help in whatever ways we can! We understand that sometimes people need payment plans, that bills pile up or accidentally go unpaid, and that every individual’s path to a great credit score is different. Give us a call and let’s work together to turn the negative into a positive!