On behalf of William Bible at Law Office of W. Thomas Bible, Jr.
Many know that it is important to maintain good credit. Credit ratings can affect so many aspects of a person’s life, including the ability to obtain home and auto loans, the interest rates on loans, the ability to rent housing, and in some cases job opportunities. People trying to rebuild their credit should be aware of some of the more surprising things that can undo the work they have done.
Once an account of any type goes to a collections agency, it has a negative effect on a person’s credit score. People may not think of the many different types of accounts that can go to collections agencies. Many know that credit card and medical debts often go to collections, but few would think of library fines or parking tickets leading to collections calls.
Even if a person has not used a particular line of credit in quite some time, it may not be wise to cancel the account, as it may actually lower a person’s credit score. A significant part of the way that credit reporting agencies calculate credit scores has to do with how long a person has had credit. If a person shortens his or her credit history by closing old accounts, his or her score will likely fall.
Increasing Credit Limit
When a person asks for a creditor to increase his or her line of credit, it may cause the lender to initiate a hard inquiry into a person’s credit. Each time a creditor conducts such an inquiry, a person’s credit score falls a few points.
Lowering Credit Limits
People may believe they are being responsible when they ask creditors to reduce lines of credit available. However, credit scores are based in part on the relationship between the amount of a person’s debts and the amount of credit he or she has available. If a person lowers the amount of credit available to him or her, the ratio of open credit to available credit shrinks and ends up negatively affecting credit scores.
Talk to an Attorney
Those who are struggling financially and considering bankruptcy may be concerned about the effect that bankruptcy may have on their credit scores. However, in some cases bankruptcy may be more beneficial to a person’s credit in the long run. If you are having money problems, consult a seasoned bankruptcy lawyer who can discuss your options with you.