Credit is a useful tool and when handled responsibly allows us to obtain credit cards, loans for homes, cars and other big ticket items. The better we handle our credit, the better the terms that are offered to us from lenders including higher credit lines and lower interest rates.

If, however, a person obtains credit and does not handle their obligations responsibly, damage to their credit report is the result. This means loss of favorable interest rates and difficulty in obtaining credit as well as late fees and in some cases, accounts being sent to collections.

There are a number of factors that can have a negative impact on your credit score and severely reduce your ability to obtain credit. Outlined below are some of the most common things that have a negative impact on your credit score.

Too Many Revolving Credit Accounts

If you have good credit it is relatively easy to be approved for a credit card. In some cases a person opens several credit card accounts but instead of paying them off each month, they carry the balances over on one or more of their cards. Even if you are making regular payments to all of your creditors just having too many revolving accounts will lower your credit score.

High Balances On Revolving Credit Accounts

If you carry balances on multiple credit cards at or near their assigned credit limit, this will have a negative impact on your credit score.

Late Payments

It cannot be stressed enough that payments should always be made on time if at all possible! Roughly one third of your credit score is determined on this one factor alone. Habitual late payments will drastically lower your credit score and impact your ability to obtain new credit.

Skipping Payments

If you are having difficulty making ends meet it might be tempting to skip payments on some of your accounts. Resist this line of thinking because it will have severe consequences to your credit rating! If you are unable to make your payments, contact your creditors and try to work out a payment arrangement with them. If this is not possible, debt consolidation might be your best option. It is never in your best interest to ignore your debts and doing so will only compound the problem.

Accounts Charged Off

Repeated skipped payments indicate to your creditors that you do not intend to pay them so they will move your account to the bad debt ledger and begin the process of charging off your account. Once the account has been charged off it is sent to collections as a last attempt to collect the debt. This has a serious impact on your credit score.

Accounts In Collections

Once your account reaches collections you have normally had several months to work out arrangements with the creditor. The fact that it has reached collections tells potential creditors that you are a high risk and will make them reluctant to offer you credit. If they do, you will most likely be charged a very high interest rate. When an account is sent to collections it lowers your credit score and is noted on your credit report, remaining there for several years.

Bankruptcy

Bankruptcy may seem like the only option if your debts are out of control but should be used only as a last resort. Bankruptcy can lower your credit score by up to 250 point and remains on your credit report for up to 10 years.

If you are facing serious financial problems, debt consolidation is usually a better alternative than bankruptcy and will be considerably less damaging to your credit score.