Your credit score is the three-digit number between 300 and 850 that provides a quick guide to your likelihood of repaying money that you borrow. There are three credit reporting agencies in the United States, which record your borrowing and payment actions to each calculate a score for you. These agencies are Experian, Equifax, and TransUnion. You are entitled to a free credit report from each of these agencies once every 12 months.
When you apply for a loan, the creditor uses your credit score to determine whether you are qualified for the loan and if so, the interest rate you are qualified to receive. Making your payments on time, utilizing less than a quarter of your total available credit, and a payment history free of wage garnishments, foreclosures, and liens all raise your score. Filing for bankruptcy, closing credit cards that have balances, and applying for multiple cards at once can all lower your score. Below are a few other important events that can impact your credit score.
Defaulting on a Loan
When you fail to make your loan payments, you default on your loan. Defaulting on a loan, whether it is a student loan, a mortgage loan, an automobile loan, or any other type of loan, has a substantially negative impact on your credit score. If you are concerned about making your loan payments, do not simply wait to default. Take action and contact your loan servicer to discuss your options for avoiding default. These might include consolidating your loans or creating a payment plan.
Receiving a Judgment
If the court needs to make a judgment to get you to repay your debt, your credit score will take a hit. Even if you do receive a judgment, pay the money you owe. Not paying your court-ordered amount can hurt your credit score even more than receiving a judgment and paying it.
Maxing Out Your Credit Cards
Credit utilization is a key part of calculating your credit score. Ideally, you should be using 15 to 25% of your available credit. When you borrow beyond this, your credit score can suffer. If you use your maximum credit limit, your credit score will definitely suffer.
Work with an Experienced Rolling Meadows Bankruptcy Lawyer
If you are considering filing for bankruptcy, first speak with an experienced bankruptcy lawyer to determine all of your options. In some cases, it is not necessary or even helpful to file for bankruptcy. Bankruptcy can be a valuable tool for individuals facing significant amounts of debt, but it can also make a significant impact on your credit score and your lifestyle. Our team of experienced bankruptcy lawyers at Newland & Newland, LLP can help you determine if bankruptcy is right for you or if another option could work better. Contact our firm today to set up your initial legal consultation with us. We serve clients in the Arlington Heights, Palatine, Rolling Meadows, Libertyville, Mundelein, Buffalo Grove, Schaumburg, Elk Grove, and Itasca areas.
(image courtesy of Jdapenao)