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Credit history is an important report that reflects on an individual's financial credibility. Having a good credit history is very essential in today's world. But, with multiple credit cards and loan systems, high interest rates coupled with economic recession, it is difficult to manage the credits. This gives rise to a low credit score or a bad credit history. There are many aspects of credit cards and loans that need to be taken care of, in order to avoid bad credit history. Some of the important aspects that can lower the credit scores are listed below.
Dues, late charges and high outstanding balance:
The most important reason for a bad credit history is a missed credit card bill or a payment which is late by more than 30 days. If you have missed a credit card bill payment or failed to pay the minimum balance that is required, it will result in a low score of your credit history. Outstanding balances, late payment charges and higher interest rates for the late payment will reflect upon the credit history. Also, if you have outstanding balance that is higher than 30% of your credit card limit for a long period, that can result in a low credit score. Usually, the outstanding balance should be lesser than 30% of your approved credit limit.
Student loans, long term loans:
Student loans and other long term loans like housing loans or vehicle loans can also cause bad credit history. It will be sometime before they are considered current and will not affect your credit history
Bankruptcy:
Filing a bankruptcy if you are unable to pay off the credit can lead to a bad credit history and a very low credit score.
Cancellation of credit card accounts and charge offs:
Cancelling the credit card accounts and bank accounts especially with an outstanding balance can result in a bad credit history and a low credit score. Credit card companies consider an account as a bad account if they do not receive any payment continuously over a period of time. They suspend the account calling it a charge off and this can result in a bad credit history.
New credit card applications and lowered credit limits:
Applying for a number of new credit cards and inquiring about the credit cards can lead to a low credit score. Also, if the credit limit on your card is lowered, this will reflect upon your credit history.
Inaccuracies by credit report companies:
There are companies called credit reporting companies that will generate your credit history. There can be inaccuracies and clerical errors while compiling data related to your credit history. This can also lead to bad credit history, if left unnoticed.
Bad credit histories and low credit scores have a number of disadvantages. Because they hold good for 7 to 10 years, it will be difficult to handle any financial crisis within this time. Bad credit history means the chances of obtaining loans and new credit cards from reputed companies are made much more difficult than it already is. It is always a good financial practice to maintain your credit scores high and have a sound credit history. Having a good credit history will make you much more equipped to respond to any financial crisis ahead.
