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Q&A: What will happen to your credit score if you do not manage your debt wisely?
Question: What will happen to your credit score if you do not manage your debt wisely?
If you’re not careful with how you handle your debt, your credit score can take a hit, and here’s why. Your credit score is like a financial report card, and it reflects how well (or not so well) you manage your finances.
One of the biggies that affects your credit score is your payment history. If you start missing payments or are consistently late, it sends a red flag to lenders that you might be a risky borrower. These missed or late payments get recorded on your credit report and can drag down your score. The more frequent and recent these are, the more they can hurt.
Another key factor is your credit utilization ratio. This is basically how much of your available credit you’re using. If you’re maxing out your credit cards and not paying off the balances, your credit utilization goes up, and this can negatively impact your score. Lenders like to see you using less than 30% of your available credit.
Then there’s the issue of taking on too much debt too quickly. If you’re constantly applying for new credit or loans, it can result in multiple hard inquiries on your credit report. Each of these can shave off a few points from your score. Plus, it might make lenders a bit wary, thinking you’re desperate for cash.
Lastly, if you really go off the rails and default on loans or have accounts sent to collections, it can seriously tank your credit score. These negative marks can stay on your credit report for years, making it harder to get approved for future credit or loans.
In a nutshell, not managing your debt wisely can lead to a lower credit score, making it tougher and potentially more expensive to borrow in the future. It’s always a good idea to stay on top of your debt, make timely payments, and keep an eye on your overall financial health.
Stilt, Inc. and its affiliates do not provide financial, tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own financial, tax, legal and accounting advisors before engaging in any transaction.