Why your Credit Score may be Low Credit Score

Michelle and Greg saw themselves as poster children for credit companies. As far as they were concerned, they had the perfect credit record and were constantly pursued by the credit card companies and banks who offered them more credit than they needed. Imagine their surprise when they found that their credit score was not at the high level they had imagined. What could have gone wrong?

The higher your credit score, the more advantages you are afforded in the credit market. The options available to you are significantly more than those available to someone with a low credit score. If you have a low credit score, it is imperative that you determine the reasons and work to improve your score.

While credit scoring may vary from country to country, the principle and intent is basically the same. One’s credit score is derived from a statistical analysis which is supposed to determine if one is a good or bad credit risk. A low credit score will mean that you are a bad risk and creditors will, therefore, need to apply certain restrictions or protections to ensure any credit you receive is honoured. If you get a bad credit loan, your interest rate would be higher, the amount you can borrow would be limited, and the payback period could be shorter.

Your credit score could be low for a number of reasons:

Outstanding Fines: If you haven’t yet paid those court fines or an amount awarded against you in a judgment, this could be a factor in your low credit score. Many times we tend to ignore a parking ticket and because we may not hear from the parking authority, we think that somehow they must have forgotten about it. No they haven’t and you can be assured that the credit bureau has been advised.

Two Many Credit cards: Believe it or not, too many credit cards can negatively affect your credit score. It doesn’t matter if you have a zero balance on these accounts, the fact that you have an open account tells the credit company that you can use it at anytime and as such it is a seen as a debt waiting to be incurred.

High Account Balances: So you have a $5,000 credit balance and you are paying it off with the minimum payments monthly. You are being responsible, but unfortunately, the higher the balance, the more nervous the creditor becomes and therefore, your credit score is affected. So think carefully about using those payment holidays that the credit card companies are so eager to give you.

Late Payments: How many times have you put your payment in the mail a day or two before it is due? Most likely it reaches the creditor after the due date and your credit score is negatively impacted. It just takes one late payment to affect your score, so just think how adversely it is affected if you regularly send your payments late. This you would never know unless you check your credit report, and this applies to any bill payment.

Too Many Credit Inquiries: If you apply for several loans over a short period or for several credit cards, it generates a lot of activity on your credit report. Too many queries about your credit is detrimental to your credit score. Each enquiry about your credit history, could result in your score being lowered by a few points.

Poor Credit History: Bankruptcy, bad debts, underpaid loans and no credit can all contribute to a low credit score. A low credit score due to a poor credit history, or any reason for that matter, can limit your chances of getting not only a loan or credit, but a job or your ability to lease an apartment.

Identity Theft: You may be doing everything right. You just have one credit card with a low balance. You make timely payments, on your credit cards, loans and other bills, and never miss a payment. You find out, however, to your dismay, that your credit score is quite low and upon investigation it is uncovered that you are a victim of identity theft. Identity theft is becoming a major reason today for low credit scores which can alert you to the fact that something is wrong with your credit, completely outside your control.

Improving a low credit score takes time and a lot of self control, but it can be done. Once you understand the causes of low credit scores, you can take steps now to avoid some of the pitfalls. Reducing high account balances, the number of credit cards you have and being vigilant about protecting your information to avoid identity theft, are just some of the ways you can monitor your credit.