Here is a top 10 reason for your credit score will decrease
1) Bankruptcy. A bankruptcy will not only decrease your credit score immediately but will also affect you in the years to come. Remember your 1st bankruptcy can fall off your bureau in 7 years but it will take rebuilding as well. Just because a bankruptcy falls off a bureau does not mean you get points back. My suggestion would be to only claim bankruptcy if absolutely necessary. If you claim bankruptcy for a very small amount the lenders moving forward will notice this and be hesitant to lend you the smallest amount of money. It is not impossible to get a bad credit car loan or credit rebuild with a bankruptcy, but a trustee letter will be needed.
2) Late payments. A late payment, especially if you have young credit can really hurt. If you are someone that normally pays on time a late payment showing on a credit bureau can be the difference between a good credit car loan and a bad credit car loan in Canada. Of course a 90 day late payment will lose you more points than a 30 day late payment, but late is late. Always try to make sure all payments are made on time
3) Judgment. Any Judgement in the court of law is a killer for your credit. A judgement can happen for a lot of reasons but usually because you have not communicated with a lender for quite sometime. A lender will usually not go as far as getting a judgement if arrangements are made the lender can agree too.
4) Collections. This is one that people don’t ever seem to realize when they hit their credit Bureau. Collections happen because a person has not communicated efficiently with their lenders. A lender does not want to to take someone to a collection agency. They do it because the consumer, either doesn’t communicate, or doesn’t care about making arrangements. A Lender actually loses money when they take someone to collections as they will need to pay the collection agency money to act on the file. Larger collections will certainly affect any approvals for car loans more then really small ones, but a collection is a collection. Work with your lenders to pay off your debts before they goto collections.
5) Over Limit. A lot of people dont realize that interest get added on to any monthly credit card bill and can easily take them over their limit. When a person applies for a car loan online the lender will certainly look for over limit trade lines. Before applying for a car loan make sure you are reporting below your limit on your revolving trade lines.
6) Maxed out Credit. This can bring down your score as it shows to lenders that you are always using the limit supplied to you. Lenders are fearful that you wont be able to pay your limits and claim bankruptcy or default on the loan they are looking at supplying. Most lenders when it comes to Car Loan approvals will not approve a car loan if your debt servicing is about 55%. This means that the bills your pay in a month are more than 55% of your wage. This is super important for smaller income earners.
7)Credit Seeking. I have spoken before about how credit seeking can bring down your score. Credit seeking is when a person looks for different types of credit in a short period of time. This does not refer to shopping for the best rate. This refers to a person just looking for lots of different credit in a short time. This being said applying for 8 car loans in 1 week is certainly credit seeking.
8) Too many trade lines. This will refer to a person having way too much credit to get access to for both their age, credit history, and earnings. An example of this would be someone making $2500 a month in salary and having $100,000 in credit. This should, of course, never be allowed by an institution in the first place, but this is just an example of having too much available credit.
9) Not using credit. If you have credit available and you are not using it at all for a long period of time this can actually bring your credit score down. If you have available credit try to keep them active.
10)Closing a credit card. This might tie into #9. Don’t close credit cards. As your credit score takes a calculation of your average time of credit it is very important to keep your longest standing credit card in use. The trick is to not have that many credit cards in the first place that you would need to close one.
Just my 2 Cents
-M
Mark
