Below are some of the possible causes that could have led to your desired credit score is not as high as you wish. Your credit score is determined by the information listed in the credit report, thus, things that appear on the report are capable of pulling down your score. Here are some of the main causes of low credit scores and strategies that can be employed to rectify the situation.
Missed or Late Payments I think one of the most important aspects that affect your score are non-payments or delayed payments of the credits that you have. This is because creditors send information on late payment to the credit bureaus and it takes up to seven years for it to be removed from your credit report. One missed payment alone will cost you around 50-100 points or even more. On this note, the best news is that as these credit card payments are considered to be late, the ageing of these payments lessen the effect they have on the total score. However, to increase the number back up, it is crucial not to miss any payments even if it is by a single cent.
High Credit Utilization Ratio The credit utilization ratio considers the extent of your credit limit that you use at certain time. It is advisable to keep this under 30 percent and the lower the better for your score. Having an overall utilization over 30 percent, or maxing out your cards, can cost you 40-50 points. To improve, pay down balances to get utilization as low as possible. One can also apply for credit limits and request for higher credit limits to decrease the ration.
Incorrect Information on Your Credit Files This is a fact, there are many occasions where mistakes like accounts that are not your own, incorrect balances, duplicated accounts or any other mistake can hurt your score. To challenge any incorrect information you discover with the credit bureaus, request for a reinvestigation to have the information expunged or corrected. It can increase your score once the mistakes are corrected.
Lack of Credit History The primary factor is that if one has few accounts or if they have been using credit for a short time, it will be difficult to attain very high credit scores. Often it can take up to half a year of active credit accounts even to accumulate the amount of history necessary to establish a credit score. The best way to improve your score is to just keep creating more positive history over time. Do not close any credit card accounts, for a longer average credit length also benefits your credit score.
Opening New Accounts in Large Quantities While you may gather a number of store credit cards to save money, this is not always a good idea because every credit application and new account has some impact on credit. It is important to note that opening many new accounts within a short period can be detrimental to your score. That is because it may signal risk and make lenders question your capacity to handle more debt. Use cautiously when applying for new credit and do so at least six months apart.
Name is Same in Some of the Accounts Where It Follows Other Accounts This is particularly so if the account belongs to your spouse, partner or other family members because your credit status will be affected. To reiterate, if your name is connected to any shared accounts and these have had some payments made past their due date then it will impact your personal credit score. Just as important you ensure all the accounts that you have co-signed or are joint accounts with other people are healthy, in order not to lead to the drops.
Inquiries from Lenders Whenever you apply for a loan or credit, the credit companies perform a hard search on your credit in order to approve you. Although these are quite reasonable, if they occur too frequently within a short period, they are deemed risky and might even lower your score by a few points at least for some time. As mentioned above, limit applications, and only apply for credit that one expects to need and be able to repay.
Unpaid Collections Accounts If the particular account was in a collection status, this would significantly reduce your score. The first observation of collection accounts can lower credit scores more than 100 points. If there are unpaid collections accounts or bills which are valid, attempting to settle these will help reduce the negative impact on your credit. Paid collections remain on your report for seven years, but when you make an effort to pay them in full, it helps build a more favorable credit history in the long run.
Bankruptcy Having a past bankruptcy is a major factor which negatively impacts your credit score and takes about seven to ten years to be cleared. While useful for some consumers, it shows a severe financial occurrence that causes lenders to be cautious until time has elapse. Negotiate to have positive credit since discharge and avoid the use of credit cards to bring up the score gradually.
Limited Types of Credit The majority of scoring models, in order to provide the highest score possible, like to see that you have a variety of account types in your credit report. This includes credit cards, retail accounts, installment loans, mortgage, auto loans, etc. Notably, if you only have credit cards but no other types of credit, you will be considered as a higher-risk borrower than those with more diverse credit profiles.
No Recent Credit Activity A score based on old credit accounts is good for your score, but it remains vulnerable if you have not had any credit activity for years. This is because scoring models consider inactive accounts as more risky. Make an effort to use credit every once in a while, or get into the habit of charging small amounts to low-use cards to demonstrate active utilization. The only caution is that balances need to be paid off regularly.
The good news is that most of the things that can negatively affect credit scores can be reversed through right actions. As you continue to accrue credit, ensure you pay all your bills promptly, do not accept any errors, keep your credit balances low and the number of credit applications that you make minimal. The key here is that it’s possible to turn the trend around, all it takes is hard work and time.
