A lot of people don't know how having debt affects their credit score. Also, they don't know how the different things they do can change their score. Some of these debt actions may seem harmless, but they can have big effects on consumers who aren't careful. This article will look at some of the ways that debt and your credit score are related.
The most obvious link between debt and a credit score is when a person doesn't pay their bills on time. As debt grows, it can get harder and harder to pay bills on time, and some bills may end up being paid late or not at all. If you're overdue on a bill for more than 60 days, it's likely that it will be reported to the credit agencies. This will hurt your credit score in the long run.
The amount of debt a person has on file is another thing to think about when it comes to debt and credit score. Your debt-to-income ratio is one of the most important things that affects your credit score. Even if you pay all of your bills on time, red flags will go up at the lender's office if your debt is more than a certain percentage of your income. In other words, the more money you need to pay your current bills, the less money you will have on hand to pay future loan bills if the lender agrees to give you a new loan.
The debt-to-income ratio limit is different for each lender and each type of loan. A ratio cut-off number for a home loan application would almost certainly be lower than one for an auto loan application. The best thing you can do to stop this is to pay off your debts on time. This is especially important if you want to get a home loan.
A fact that many people don't know is that loan applications can sometimes change a person's credit score. When a person applies for credit, such as a loan or credit card, that request is recorded in their credit report. When a lender sees too many of these applications in a short amount of time, it also sends up red flags. This is strange because the applications don't even have to be approved for this to look bad on your report. Just the fact that you sent in so many applications could hurt your credit in the future.
To avoid this, don't fill out credit applications just for fun, especially credit card applications that fill up most mailboxes, unless you really need and want that credit line with that credit company. If you are careful about what you choose, this problem will almost certainly not happen.
Lastly, you should be concerned about debt and your credit score before they become a problem. If you see any signs that you are going to have money problems, you should do something about it. Keep in mind that some problems with your credit can stay on your record for up to seven years, lowering your credit score the whole time.
