If you’re planning to apply for a loan, rent an apartment, or get a credit card, your credit rating matters.
A credit rating is a 3-digit number that reflects your creditworthiness. Lenders, landlords, and credit card companies use it to evaluate your ability to pay back debt. The higher your credit rating, the more likely you are to get approved and receive better terms and interest rates.
However, if your credit rating has tanked, you may encounter difficulties in getting approved, or you may receive unfavourable terms and high interest rates. Here are 6 signs that your credit rating has tanked:
Sign 1: Missed payments
Missed payments can significantly affect your credit rating. If you miss a payment on any debt like no guarantor loans, short term loans, credit card bills, etc., then it can stay on your credit report for up to seven years and can result in a drop in your credit score. Payment history makes up 35% of your credit score, so it’s essential to make your payments on time.
To avoid missing payments, set up automatic payments or reminders, or create a budget to ensure that you have enough funds to cover your bills.
Sign 2: High credit utilization
Credit utilization is the amount of credit you’re using compared to the amount of credit you have available. If you’re using too much of your available credit, it can negatively impact your credit rating.
The general rule is to keep your credit utilization below 30% of your available credit.
To manage your credit utilization, pay down your debts, and avoid maxing out your credit cards. You can also request a credit limit increase or open a new credit account to increase your available credit.
Sign 3: Delinquencies
A delinquency occurs when you fail to make a payment on time. Delinquencies can have a severe impact on your credit rating, and the longer you’re delinquent, the worse it gets. There are different types of delinquencies, such as 30-day, 60-day, and 90-day delinquencies, each with varying degrees of severity.
To avoid delinquencies, make sure you have enough funds to cover your bills, set up automatic payments or reminders, and communicate with your creditors if you’re facing financial difficulties.
Sign 4: Collection accounts
Collection accounts can stay on your credit report for up to seven years and can significantly lower your credit score. It’s crucial to avoid collection accounts and work with your creditors to resolve any outstanding debts.
To avoid collection accounts, communicate with your creditors if you’re having difficulty paying your bills. You can also negotiate a payment plan or settlement to avoid collection activities.
Sign 5: Bankruptcy
Bankruptcy is a legal process that allows individuals or businesses to discharge their debts and start fresh. However, bankruptcy can significantly impact your credit rating and can stay on your credit report for up to ten years.
To avoid bankruptcy, consider reaching out to a credit counselling agency or financial advisor for help with debt management and budgeting. You can also negotiate with your creditors to work out a payment plan or settlement.
Sign 6: Debt settlement
Debt settlement is an agreement between you and your creditor to pay less than the full amount owed to settle a debt. However, debt settlement can negatively affect your credit rating and can stay on your credit report for up to seven years.
To avoid debt settlement, communicate with your creditors and negotiate a payment plan or settlement that works for both parties.
Your credit rating is an essential factor in your financial life, and it’s essential to monitor it regularly. If you notice any of these six signs that your credit rating has tanked, take immediate action to resolve the issue.
By making payments on time, managing your credit utilization, avoiding delinquencies and collection accounts, and avoiding bankruptcy and debt settlement, you can maintain a good credit rating and improve your financial well-being.
How often should I check my credit rating?
It’s recommended to check your credit rating at least once a year, but you can check it more frequently to monitor any changes.
Can I improve my credit rating if it has already tanked?
Yes, it’s possible to improve your credit rating by making payments on time, paying down debts, and managing your credit utilization.
Will checking my credit rating lower my score?
No, checking your credit rating won’t lower your score. However, applying for credit and having too many inquiries can affect your credit rating.
What should I do if I can’t make a payment on time?
Communicate with your creditor as soon as possible to discuss your options, such as setting up a payment plan or negotiating a settlement.
How long does it take to rebuild a good credit rating?
It depends on your situation, but it can take several months to years to rebuild a good credit rating. The key is to make payments on time and manage your credit responsibly.