What will happen to your credit score if you do not manage your debt wisely?

Home Forums Debt What will happen to your credit score if you do not manage your debt wisely?

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    Jordan Moore
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    Jordan Moore
    Keymaster

    If you don’t manage your debt wisely, your credit score can take a serious hit. Here’s what tends to happen:

    1. Late or missed payments: Your payment history is the biggest factor affecting your credit score, making up about 35% of it. Even a single missed or late payment can cause your score to drop significantly and stay on your credit report for up to seven years.
    2. High credit utilization: Using too much of your available credit can also lower your score. Credit utilization—the ratio of your credit card balances to their limits—should ideally stay below 30%. Higher utilization can signal to lenders that you’re overextended and less likely to pay back new debts.
    3. Increased debt load: Accumulating more debt, especially on credit cards, can lead to higher monthly payments and increased financial strain, making it more difficult to meet your obligations. This can spiral into more missed payments and further damage your credit score.
    4. Collections and defaults: If you fail to pay your debts, creditors may turn your accounts over to collection agencies. Having collections listed on your credit report damages your credit score. In severe cases, defaulting on loans or having your account charged off (when a creditor writes off your debt as a loss) can also hurt your credit.
    5. Bankruptcy: As a last resort, failing to manage debt might lead you to consider bankruptcy, which can have a devastating impact on your credit score. A Chapter 7 bankruptcy can stay on your credit report for up to 10 years, while Chapter 13 remains for seven years.
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