Roughly one-fifth of all Canadian adults have a credit rating of poor or bad. If you are one of these people, you should do everything in your power to repair your credit as fast as possible. A good place to start would be to obtain your free credit report to determine the cause or causes of your poor credit score. In the mean time, here are a few common reasons why your credit score may be bad:
You have a bill in collections: While most people know they have an overdo bill, some people find themselves shocked to find out a bill they forgot about is in collections. Many times, these bills can be from monthly subscriptions to products/services like a gym or spa. If you do not update your financial information, the monthly bill will bounce and eventually will lead to collections. Therefore, keep all of your financial information up to date and keep track of your monthly subscriptions.
You are overusing credit: Credit Agencies pay special attention to your credit usage, especially to new credit consumers. If you are using a large percentage of your available credit right away, then chances are your credit is going to take a turn for the worst. Generally speaking, most financial advisors recommend you use no more then 30% of your credit at any given time. Once you reach above 60 or 70%, you will notice your score has been dramatically lowered.
You have to many hard inquiries: Hard inquiries are simply formal requests for credit, whether it be for a credit card, mortgage, auto loan, etc. Lenders normally do not view multiple credit requests as negative until they reach in the high single digits. However, once you reach say seven or eight hard inquiries, lenders start to view you as a desperate consumer – hinting that you are irresponsible. Also, small business owners need to remember that applying for business credit cards still requires a social security number. Therefore, it will appear on your credit report as a hard inquiry.
You have a history of missed payments: One missed payment is not going to harm you too terribly bad. Just about everybody misses a payment at some point in their lives and most creditors understand that. Often times, if you are a day or two late, they will forgive the lateness and not mark it on your credit report. However, if you have a history of late payments, creditors will show no mercy in reporting them – thus causing your credit to take a drastic hit.
These are four of the most common reasons why your credit score has dropped or is remaining in the “poor” category. Luckily, we have outlined steps you can take to improve your credit score in another article on our website. Having a great credit score has many advantages that you reap the benefits of if you change your financial habits and improve your fiscal responsibility.