Did You Kill Your Credit?

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by Brian Dineen

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01.28.2021

Everyone is aware that not paying your bills on time damages your credit rating and makes borrowing more difficult. Few people are aware that certain credit misbehavior damages your credit at an accelerated rate, eventually leading to the inability to borrow any money. They are listed here in order of importance.

The first Cardinal Sin in borrowing is not paying your mortgage on time (home or business). This payment provides the necessary shelter for your family or business. If you show a history of not paying it in a timely fashion, why would any lender trust you to pay them back faithfully? If you’re not making THE most important debt payment on your ledger, the weight of that delinquency has a serious negative effect on your credit score.

Next on the list is installment loans. An installment loan is a lump-sum loan with a fixed interest rate, a fixed monthly payment and a fixed payoff term. These include car loans, student loans, and personal loans. Most lenders today work on automated ACH (Automated Clearing House) withdrawals to receive their loan payments. They rely on you having the funds necessary to make the payment available every month on the due date. When a potential new lender sees that you have not consistently done that, they will think those same issues will become their problem should they loan money to you. Very few lenders will assume that risk, and those that do are charging very high interest rates to reflect the risk they’re taking. A checkered payment history on any installment loan degrades credit score significantly over time.

Finally, there is interim, or flexible, borrowing that requires a minimum monthly payment. The primary vehicle for borrowing here is a credit card. This once again points to consistency. Since there are other factors along with pay history, such as how much of your available credit you’re using, it’s not the only weighted item affecting your score. However, a history of not consistently making at least a minimum monthly payment on time will bring your score down a bit.

Every borrower can go through financial stress, sometimes through no fault of their own. Managing that stress properly is the key to minimizing damage to your credit and in turn affecting your ability to borrow now and in the future. While making any debt payment on time is important to maintaining a healthy credit score, if necessary prioritize the most heavily weighted items in order to limit the decline in your score.

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About the Author

Brian Dineen

Brian Dineen is the owner of Trinity Capital Partners. Mr. Dineen has experience in all facets of the commercial lending industry. His expertise includes credit evaluation, underwriting, collateral valuation, lease structuring, loan packaging, and loan/lease closing.

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