What Credit Card Debt Does to Your Credit Score

Credit card debt is known by most people as one form of bad debt. It's really the type of debt that no one should have but in an emergency. A credit card is something that gets a very high interest rate, which is one reason to avoid this type of debt. Unlike a car loan, too, you aren't steadily paying off a credit card. Instead, you can run up more and more debt until you reach your maximum limit. Then, you can just pay it down and start all over again.

Besides this, credit cards normally have very high payments. This is because they have ridiculously high interest rates. Even if your payments are high, though, making minimum payments can often land you in debt for literally years to come. Even if your original debt isn’t that large, credit card interest rates can cause your payments to drag on for months and months on end. Eventually, you can even end up paying twice as much as you originally put on your credit card all because of compounding interest!

Another reason to avoid credit card debt, though, is that it can also cause your credit score to suffer seriously. Because this is high risk debt, the credit reporting bureaus mark it very unfavorably on your report. Having a load of credit card debt is probably the surest way to get your score down other than making none of your monthly payments on time.

The main way that credit card debt is scored isn’t necessarily, though, by how much total debt you have. You can have $10,000 of credit card balances and still have a great credit score. Mainly, the companies who make your score actually adjust it based on how much debt you have compared with how much credit you have available.

If you have $10,000 worth of debt but have a $100,000 credit limit, your score will still be really high. If you have $2,000 worth of debt and have only a $2,500 limit, your score will take a huge hit. The closer you come to maxing out your cards, the worse your credit sore suffers.
This is why the quickest way to repair your credit is to pay down credit cards. As soon as you see that your score is starting to suffer, work on getting those balances down. You’d be surprised just how quickly this can turn your score around!

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Don’t Allow Bad Credit to Haunt You

Bad credit can seriously affect your life, from an inability to make small purchases to losing a coveted job prospect. Many business check credit reports for insight on your responsibility with financial matters, and a bad score will tell them everything they need to know. You don't have to allow your bad credit to haunt your daily life, though. With some time and effort, you can begin to repair your credit rating.

First of all, you need to obtain a copy of your credit report. You can get a free credit report once per year from a few different websites. A quick Internet search will find those sites for you. Once you have the report in hand, look over it for any possible credit reporting errors. These may be classed as a mistake when reporting late or missed payments, reports for someone with a similar name, or accounts opened by an identity thief. You may be surprised at the number of errors that appear on your credit report, but you can dispute the charges by calling the creditor. Most creditors will be happy to work with you to have those charges removed.

Next, you will need to focus on the accounts that have several late or missed payments. These reports will fall off of your credit report after approximately two years, but only if you manage to bring your account current and continue to make timely payments. Do not make the mistake of believing that one missed payment will not affect your score. It may only drop the actual score a few points, but the late or missed payment will be recorded for all future lenders to see. This can be the detail that causes you to be denied new credit.

If you have a loan default or a bankruptcy on your credit report, there is nothing you can do to make it disappear. Your best chances to bounce back are to continue to make timely payments to your creditors to show them that you are determined to better your credit history. You can apply for smaller credit cards, but do not use them for large purchases. Instead, make one small purchase per month and pay it off immediately when the bill arrives. This will help to build a better credit rating for you by showing that you can be responsible, but also by improving your debt to available credit ratio.

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Credit Education for College Students

College students these days have plenty of experience with credit. The average student graduates with tens of thousands of dollars worth of student loan debt, and many students even have credit card debt upon graduation. The problem, though, is that many students have absolutely no credit education. They can have degrees in anything but still know absolutely nothing about their credit and the problems it could cause for them later in life.

It's important, then, for parents and other adults to educate college students about credit. There are lots of different ways to go about this. One of the most effective, though, is to simply run the numbers. Like most people, college students are inherently logical, and they'll respond better when something is right in front of their faces. Most students are pretty poor, and they know the value of the dollar. This means that they will respond well if you give them an illustration of exactly what can happen if they go on taking out credit.

One way to do this is to use an online credit calculator. It can show you just how much interest you'll pay on even a small debt over time. You can also use these to show how long it will take to pay off a debt at a certain rate or how much money you'll pay in interest by paying minimum payments. Many students assume that it's okay to make minimum payments, for instance, on student loans. They just don't realize how much more money this will cost them over the life of a loan.

Another way to work with credit education with students is to let them know how much a bad credit score can cost them. Many students aren't even aware that they have credit scores, even if they've had credit cards for years. Talk to your college student about how a poor credit score can affect them before they start to create a terrible score that's too hard to dig out of.

Most college students graduate with big dreams. They want to get good jobs and buy beautiful homes and cars. What they don't realize is that a bad credit score can keep them from getting the job of their dreams, as many employers look at credit scores to get an overall idea of how responsible someone is. Also, a bad credit score can keep someone from getting a home or car loan, so the decisions college students make now can affect their entire lives.

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Don't Let These Credit Mistakes Happen to You

There are so many different ways that you can make mistakes on your credit report. In many cases, the mistake might not even be one that you made. If you are not diligent in keeping up with your credit history, then your credit score and purchasing power can suffer greatly. There are many mistakes that you can make that you should never want to appear on your credit report, however. These might happen because you just do not realize how negatively they might impact your life. Keep in mind that a bad credit score won't just earn you a credit rejection, but it might cost you a coveted job.

If you miss a payment for more than six months for a particular lender, chances are that the creditor will choose to write off the account. This means that the lender has deemed your debt as uncollectable. You might feel the relief when the calls cease, but you are in for a nasty surprise when you check your credit report. These charged off accounts will remain on your credit report for seven years, and every potential lender that checks your credit history will see that you allowed an account to reach default status.

You may also find that the creditor has turned your charged off account to a debt collector. This means that the debt collector has purchased your debt from the original account. For this reason, debt collectors will try even harder than the lender to collect on debts, because this is how they recoup their investment. Not only will the phone calls begin again, but the debt collector will have the power to report negative entries on your credit report, as well. This means that you will have twice the bad press for only one charged off account.

You can keep this from happening to you. If you believe that you will be late making a payment, be sure to contact the lender or creditor to let them know. Many creditors are happy to work with you until you are able to get back on your feet again. If you have had a life-changing event that could prevent you from making payments for several months, then you should definitely alert your creditors. There are often payment plans and other programs in place to help customers get through hard times, and you can get back on top without affecting your credit score.

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