Credit Repair 101: How Debt Affects Your Credit Score

When talking about your financial health, you may usually encounter the concept of debts and credit scores. These terms play an essential role in maintaining a good financial status. For instance, having a debt can affect your spending ability to the extent that you have to do some major changes in your daily and even monthly budgets. With it, your credit score which is basically a three-digit number characterizing your financial health may be positively or negatively affected, depending on how you utilize and deal with your debts. This is just one way of how debt and credit score are linked with each other to determine our financial health.

So if you think that your debt is in no way connected with your credit score, think again. Your credit score will be dropping drastically is you treat your debts like these:

  1. Delayed Payment of Debts – When you applied for a loan in the bank or any other credit institutions, your financial capacity to pay may be based on your current credit score. If you are delayed in the payment of your financial obligations, you will certainly experience a huge drop in your credit score. Because of this, your entire financial health would be jeopardized. Generally, payment delinquency is one of the vital factors that negatively affects a credit score. In addition, when you perform negligence in paying your amount due, your account may automatically be in collections and your credit score may deteriorate.  For such reason, it is always encouraged that you pay and settle your debts on time and follow terms which was agreed between you and the lender. By doing so, your credit score will rise up to your advantage and paying off your debts as fast as you can would also enhance your credit score.


  1. Huge Amount of Debt – Having a huge amount of debt definitely plays a relevant factor to your financial life. Apart from being costly, it may bar you from attaining better and sound financial goals. This may either bring a positive or negative effect to your credit score. When your debt seems too difficult to manage, you might get yourself in trouble as you will eventually have a hard time paying them. Hence, if you will encounter problems with your payment, you’ll become a delinquent payer causing your credit score to decline. In addition, dealing with too much debt is toxic, not just on your financial health but to your life in general. Imagine, you have to work every day but your entire take home pay is based on what is left after fulfilling your financial obligations. You can never achieve self-fulfillment with situations like these. On the other side of the coin, when you are successful in ensuring your on-time payment of debts, your credit score would also benefit. Being a good payer can boost your financial capacity on top of your credit score. Check out The Credit People Review for helpful tips on who can help you fix your huge amount of debt.


  1. Possibility of Loan/Credit Disapproval – Debts can either make or break your financial life. Dealing with too much debt is stressful since you have to consider several factors in doing so. When you are delinquent in the payment of your debts, your credit score will decrease. As a result, you will have to experience the possibility of loan/credit disapproval.  An example of this is when you are applying for a new credit card. Your ability to get approved in your credit card application would be at stake. This is true especially when your records show that you are not a good payer in the credit bureau. Your debt somehow injures your present credit score. It has been noted especially in the United States, that the importance of credit score should always be upheld. This is primarily because some credit bureau look at your credit score as one of the most crucial determinative indicator of whether your loan/credit should deserve an approval. Additionally, you should be mindful of your credit history as your credit score varies depending on what credit bureau your lender is using. You should still be careful with your debts because the more outstanding debt you have, the lesser your credit score value.


  1. Drastic Actions in Obtaining Debt – Debts can come in various forms. Application for mortgage, car loan, housing loan, credit card and even business loan would might be convenient but acquiring all of these at the same time would mean that you have a pile of debts to pay within a limited time frame. When you are too aggressive in obtaining loans for the same period, you may expect a sudden decrease of your credit score because the amount of your debt goes to it. It is also not a good idea to solve these problems by acquiring another set of debts because you will only drown yourself into too much monetary responsibilities. Bearing in mind your financial capacity, your debt should be lower than your net income/earnings. If your credit score is damaged, you are likely to suffer to the extent that your future credit applications would result to disapproval. In the long run, you might fail in upholding your financial health and goals.

There are many ways on how to settle debts without undergoing the possibility of losing up a lot of your worthy credit score. If your payment schedule does not work, you better utilize a good debt settlement process suitable to your debt value. However, this may brought a substantial side effect to your credit score value. But to avoid compromising your credit score, try to borrow the amount of money you really need. Use the best financial plan that complements your needs.

These are basically some of the things you need to know as to how debt affects your credit score. This financial aspect has always been considered a significant part in sustaining a healthy financial standing. That is why debts for this instance should be maintained and regulated in such a way that your financial life is always protected. Since debt can definitely affect the considerable value of your credit score, you should take the time to find effective ways on how to handle your pecuniary responsibilities properly. If you do so, you will bump into a situation when you can finally say that you are financially ready and stable. Do not just concentrate on giving your credit score a higher value but rather design your future with financial certainty. As much as you can, live a life with lesser monetary duties so that it may have a good practical impact on your financial standing.

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