There are many items on your credit report that will negatively impact your score, but there are four things you should attempt to avoid at all costs as they instantly equal bad credit and will hinder your future financing. Late payments, missed payments, overwhelming debt and the like do not hold a candle to the four horsemen of bad credit, namely, bankruptcy, foreclosure, repossessions, and collections.
Having a bankruptcy on your credit score will seriously undermine your ability to acquire credit in the near term. Many credit cards will decline you automatically, you will most likely be unable to get approved for a home loan for at least three years, and all but the most expensive loans will become unavailable to you. Bankruptcy is a drastic measure, and should be avoided if you can, to help avoid the bad credit ramifications, but that does not mean it is should not be considered in some cases to provide debt relief.
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Foreclosures on your credit score also equal immediate consideration for bad credit. Showing real estate foreclosures are becoming more common after the real estate bubble burst, and will continue to increase into the near future, but lenders have yet to alter their considerations, and a foreclosure equals bad credit. A foreclosure will limit your ability to acquire all but the credit loans and credit cards available, but as all things in finance, it will only be for a period of years, you can rebuild.
A repossession is the little brother of the foreclosure, and as such is the third horseman in our bad credit apocalypse. If you find yourself upside down on a car loan, and the bank is forced to repossess the collateral, it will greatly reduce your ability to acquire similar future financing. Your financing costs will go up, the standards required will be higher, and you will be considered to have poor credit. As with each of these, the negative ramifications can be overcome with time.
Lastly, and in my opinion, the most annoying of the four is having outstanding debt being written off to collection agencies. The vultures of the credit industry, you will receive countless annoying phone calls attempting to acquire repayment, bordering on harassment. You will be considered to have bad credit, and other notes, credit cards and loans might adjust their existing terms to adjust to your new score.
Each of these credit horsemen will negatively impact your credit score and ability to acquire financing. The good news is, if you as a consumer are confront your situation, with time and effort you can overcome the black mark of bad credit on your credit score. Avoid these four choices if you can, but sometimes debt relief requires drastic measures, seek counsel and know your options.
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