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Credit Report Red Flags: Negative Factors That Can Impact Your Credit Score

    Understanding the Impact of Credit Score in the US and Canada: What Actions Negatively Affect It?

    Maintaining a good credit score is important in both the United States and Canada, as it can impact your ability to get a loan, a mortgage, or even a job. However, certain actions can negatively impact your credit score. In this article, we will discuss some of the most common factors that can lower your credit score in both countries, as well as differences in credit reporting.

    Late Payments

    Late payments on your credit card, mortgage, or any other loans can have a significant impact on your credit score. In the United States, late payments can stay on your credit report for up to seven years, while in Canada, they can stay on your credit report for up to six years. It’s important to make payments on time to avoid a negative impact on your credit score.

    High Credit Utilization

    High credit utilization means you are using a large percentage of your available credit. This can signal to lenders that you may be at a higher risk of defaulting on your payments. In both countries, it’s generally recommended to keep your credit utilization under 30%. For example, if you have a credit card with a $10,000 limit, it’s best to keep your balance under $3,000.

    Bankruptcy

    Bankruptcy is a legal process that allows individuals to eliminate or reduce their debts. However, it can also have a significant impact on your credit score. In the United States, bankruptcy can stay on your credit report for up to ten years. In Canada, it can stay on your credit report for up to seven years. It’s important to note that bankruptcy should be considered a last resort option.

    Collections

    When you fail to pay a debt, the creditor may sell it to a collection agency. The collection agency will then try to collect the debt from you. Collections can stay on your credit report for up to seven years in the United States, and up to six years in Canada. It’s important to resolve any outstanding debts as soon as possible to avoid a negative impact on your credit score.

    Judgments

    Judgments are court orders that require you to pay a debt. If you fail to pay, it can negatively impact your credit score. In the United States, judgments can stay on your credit report for up to seven years. In Canada, they can stay on your credit report for up to ten years. It’s important to note that paying off a judgment will not immediately remove it from your credit report.

    Foreclosure

    Foreclosure is a legal process in which a lender takes possession of a property because the borrower has failed to make their mortgage payments. Foreclosures can stay on your credit report for up to seven years in the United States and up to six years in Canada. It’s important to make mortgage payments on time and communicate with your lender if you are experiencing financial hardship.

    Tax Liens

    Tax liens are legal claims against your property when you fail to pay your taxes. In the United States, tax liens can stay on your credit report for up to seven years from the date it is paid, or up to ten years from the date it is filed if it remains unpaid. In Canada, they can stay on your credit report for up to seven years from the date they are paid. It’s important to pay taxes on time to avoid a negative impact on your credit score.

    Credit Reporting Differences

    It’s important to note that there are some differences in credit reporting between the United States and Canada. For example, in the United States, credit reports include a credit utilization ratio, while in Canada, they do not. Additionally, credit reports in Canada and the United States may differ in terms of the specific information they contain, with each country’s credit reporting agencies providing slightly different details. In the United States, consumers are entitled to a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year. In Canada, consumers can obtain a free credit report from each of the two major credit bureaus (Equifax and TransUnion) as often as once a year.

    By reviewing your credit report regularly, you can ensure that there are no errors or inaccuracies that could negatively impact your credit score. If you do find errors, it’s important to dispute them with the credit bureau as soon as possible.

    Credit scores have become increasingly important in the modern era, with lenders using them as a tool to assess credit risk. However, the concept of credit dates back to ancient times. In early societies, people relied on trust and reputation to conduct business transactions. Over time, credit systems developed, allowing individuals and businesses to borrow money from lenders. The first modern credit bureau was established in the United States in 1899. The Credit Bureau of New York collected credit information on individuals and businesses and sold it to subscribers. Today, credit bureaus operate in countries around the world, including Canada.

    There is a wealth of information available on credit scores and how to improve them, and some of the most well-known and respected experts in the field include Liz Pulliam Weston, Suze Orman, and Dave Ramsey. These authors have written numerous books on personal finance and credit management, offering practical advice on everything from budgeting and saving to paying off debt and rebuilding credit. Some of their most popular titles include:

    • Liz Pulliam Weston: “Your Credit Score: How to Improve the 3-Digit Number That Shapes Your Financial Future” and “Deal with Your Debt: Free Yourself from What You Owe”
    • Suze Orman: “The Money Book for the Young, Fabulous & Broke” and “The 9 Steps to Financial Freedom: Practical and Spiritual Steps So You Can Stop Worrying”
    • Dave Ramsey: “The Total Money Makeover: A Proven Plan for Financial Fitness” and “Financial Peace Revisited: New Chapters on Marriage, Singles, Kids and Families”

    By reading these books, you can gain a better understanding of credit management and develop effective strategies to improve your credit score and overall financial health.

    Calculating credit scores can be complex, as different scoring models may be used depending on the lender and the type of credit being applied for. In the United States, the FICO score is the most commonly used credit scoring model. FICO scores range from 300 to 850, with higher scores indicating better creditworthiness.

    In Canada, the most commonly used credit scoring model is the Equifax Credit Score. Equifax scores range from 300 to 900, with higher scores indicating better creditworthiness.

    Christopher - BSc, MBA

    With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.

    Christopher - BSc, MBA

    Christopher - BSc, MBA

    With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.

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