As you may have noted, there exists a myriad of possible causes that may lead to your FICO score of 8 being lower than expected. FICO score 8 is a credit score for lenders and it is on the FICO score scale between 300-850. It is considered excellent credit if the score is above 740 and poor credit if the score is below 580.
Payment history is one of the most crucial aspects that affects your FICO 8 score. If you had any late, missed payments or any other negative entries on your credit report within the last couple of years, it will take a toll on your score. Once it gets to your report, one 30-day late payment, for instance, can cost you over 100 points. The later the payment, the greater the effect it will have on your score especially if the late payments are recent and more serious.
Another reason for this is high credit utilization; people with high balances on their credit cards are likely to end up with a lower FICO 8 score. If the total of all your credit card balances is higher than 30% of your total credit limit then it is considered to be a warning sign by FICO’s scoring model. To avoid being blacklisted by lenders it is advisable to maintain the balances of credit cards low compared to the credit limits. Allowing balances to go higher than 30% of the total credit available means higher risk and poor scores.
Many credit inquiries in a short time might also lower your FICO score. The credit reporting agency is used every time you want to create an account or get a credit card, vehicle loan, or mortgage. This causes your credit report to be subject to a "hard inquiry". While a few checks once in a while are okay, if your credit checks and loan applications are many in a short time it can lower your score. Applying for credit at separate periods allows the scoring algorithm not to highlight a person's credit profile.
Another factor that could cause trouble is credit mix; if a person has several subprime loans on their credit record, the FICO score would show that they have expertise managing credit cards, retail accounts, installment loans, mortgages, and other types of accounts. If your sole credit history is connected to credit cards, your account mix is not very rich; hence, your score may be somewhat lower than that of someone who has numerous kinds of loans effectively paid in the past.
Furthermore, somewhat lower FICO 8 scores might be a brief credit history. It will be better, ideally, the longer your good track record of handling many credit accounts. You could be more willing to lower scores than individuals with strong and long credit histories as you might have one or two recently established credit cards and FICO has little information to evaluate and calculate the risk level. Proper credit management will only help to improve long-term excellent credit ratings.
Finally, the appearances public records or collections might make could harm your credit ratings in a very short period. FICO 8 ratings will be seriously compromised by any paid or unpaid collection or judgment, bankruptcy, tax liens, or other public records. One thing on public record may cause the scores to plummet by more than one hundred points. Although debt collections or judgments may be paid off, the payments made will not be included in the report or raise the scores. The issue is that these good payment records take time to develop over the long run.
In summary, common reasons for lower than expected FICO 8 credit scores include: In summary, common reasons for lower than expected FICO 8 credit scores include:
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The most recent instances of a loan payment being made late or missed completely.
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High balances relative to credit limits
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Applying for many credit lines within a short period
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Lack of diversification in the types of credits.
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No credit references that can be used to assess
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The negative public records or unpaid collections
If any of these issues apply to the credit situation, then corrective actions must be taken to begin rebuilding the credit score over time. Ensure all bills are paid without fail. Keep card balances below 30% of their credit limit. Do not apply for credit where you do not need to, as this will keep your credit score from being checked unnecessarily. Go on charging responsibly various types of credit to prove that you can be trusted to manage diverse accounts. Let positive history accumulate. And of course, one should immediately contact the reporter of any public records or collections that should not have been reported on the credit reports in the first place.
If you exhibit such behavior when it comes to credit management and wait for positive information to appear in your reports over the next one or two years, your FICO 8 score should increase as a result. However, if one is still unclear, one should consult a credit counselor for professional advice on the issue in connection with his or her case. Never give up, almost all credit circumstances can be repaired in the foreseeable future. Have confidence that the right actions today will result in good grades and financial prosperity in the future.
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