5 Things Most Likely to Give You Lousy Credit

Whether you're thinking about buying a house, applying to rent an apartment, or financing a car, your credit score can make or break any deal. It's a three-digit number that carries a lot of weight in the lending world, yet some people lack sufficient credit knowledge. They might be unaware of actions that can bring down their personal score, or they might downplay the consequences of poor credit choices. (See also: 12 Habits of Highly Responsible Credit Card Users)

Bad credit is fixable, but before you can build your score, you have to understand factors that can result in a lousy one.

1. Charge-Offs, Collections, or Judgments

Any type of delinquency is a credit score killer. Being a few days late on a credit card or loan payment won't ruin your credit, although you might pay a late fee. However, once your account is 30, 60, or 90 days past due, and the creditor reports the delinquency to the three credit bureaus, your credit score may drop as much as 60 to 100 or more points. Typically, the higher your credit score before a delinquency, the more points you'll lose. If you never pay a debt and the delinquency results in a charge-off, a collection account, a foreclosure, or a judgment, you'll lose additional points and these remarks stay on your credit report for seven years.

2. Filing Bankruptcy

Bankruptcy is probably one of the worst things that can happen to your credit, but sometimes, it might be the only alternative if you can't handle your debt. A bankruptcy judge might discharge your debts wiping the slate clean, or re-structure debt under a new repayment plan. Either way, a bankruptcy stays on your credit report for up to seven to 10 years, and it can reduce your credit score by more than 200 points. The good news, however, is that the effects of a bankruptcy don't last forever. If you start rebuilding your credit soon after a discharge, you can repair your credit in about three years.

3. Cosigning a Loan for Someone

Cosigning might be one of the fastest ways to get a lousy credit score. Granted, some people have been able to maintain a high credit score after cosigning a loan. But for every good experience, there are undoubtedly a handful of bad ones.

There's a reason this person couldn't get credit on his own. If he pays his other bills late and ruined his own credit score, what makes you think he won't do the same with your good rating? And if he needs a cosigner because he doesn't have a credit history, he might not have the know-how to manage credit responsibility, which also puts your score at risk.

The truth is, when you cosign, you give up control and put your credit in another person's hands. A cosigned loan is a joint loan, and if this person makes late payments or stops paying altogether, your score will drop, and you may not realize the damage until it's too late. What I'm really trying to say here is this: do not cosign a loan for anyone, ever.

4. Applying for Too Many Credit Cards

Applying for a new credit card may seem innocent, but each hard inquiry placed on your credit report causes your credit score to drop by a couple points. Losing two or three points isn't a big deal when you apply for credit sparingly, especially since you can regain lost points fairly quickly with good credit habits. But if you get into a routine of applying for credit each time you checkout at a retail store, you'll damage your credit score over time. Let's say you have a 630 credit score. If you apply for 15 credit cards in a short span of time, your credit score might drop 30 points, and you can go from having fair credit to poor credit. (See also: How to use Credit Cards to Improve Your Credit Score)

5. Ignoring Inaccuracies

If you never check your credit, you're asking for trouble. So much can go wrong with your credit reports. Someone can steal your identity and open accounts in your name, and even the credit bureaus and creditors can make mistakes that drive down your score. Order your credit reports at least once a year and closely check each report for errors. A creditor may accidentally update your report with a delinquency, or the credit bureaus may fail to delete a negative item that's more than seven years old. It's your responsibility to stay on top of your credit report and ensure the accuracy of information.

Has your credit ever been dinged by any of these missteps? How did you recover?

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Nancy Williams

I've been asked by my colleagues a couple of times before to their cosign loans. Good thing is that, before I made a commitment with them, I do a research on what could be the dangers of cosigning a loan and I'm happy to say that I didn't agree with anyone. I don't want to regret paying their debt.