No one likes having a bad credit score. It can keep you from doing a lot of the things you want to do in your life, like get a loan, rent an apartment, or even get a mobile phone contract. The problem is, when you have a bad credit score, a lot of the time you do not know what caused it. Your credit score can seem like this vague number that represents you, but you have no idea what is behind it. To try and answer that question for you we have listed below some of the most common causes of bad credit scores. While we can’t say what the specific reason is for your low score, if one of the items listed below applies to you, then that’s where you should turn to start improving your credit score.
- Missed Payments – Your credit score is essentially a number that rates how responsible you are with money. The higher your score, the more responsible you are said to be. A big factor that determines how responsible you are is how well you meet your payment deadlines. If your credit history shows that you have frequently missed payments, or are even just late with them, then your credit score will drop. Even just a single missed payment could drop your credit rating significantly in some situations.
- Credit History – It is not enough to simply be responsible with your money for a short period of time. Credit reporting agencies want to see that you can maintain your good habits over a long time. Therefore, if your credit history is relatively short, your score will suffer. The longer you have a credit file, the stronger your score will be. This is why many people who are just starting out with their first credit will have lower scores. It takes time to build your score up, so just be patient.
- Credit Card Utilization – Credit card utilization means how much of your credit limit are you currently using. Your credit limit is the amount of money you are allowed to borrow on a credit card. Your credit card utilization is the percentage of the total amount owed amongst all of your cards versus the total amount of the credit limits. The higher the percentage, the lower your score will be. Just because you have several thousand pounds of credit available, does not mean you should use all of it.
- Debt – If you owe a lot of money, whether it be on your credit card or for a loan, your score will be lowered. However, having debt will usually not harm your score too much unless it has gotten out of control. As long as you are making regular payments are your debt, your score should not suffer too much because of this.
- Number of Credit Cards – Lastly, the number of credit cards you own will affect your score. If you only have one card, credit reporting agencies can’t see how well you manage more responsibility, and therefore will lower your score. On the other hand, if you have a lot of different credit cards, this shows impulsive spending habits and that you could possibly have financial trouble. The key is to find a balance and have a healthy amount of credit cards.
Hopefully these few suggestions will help you to notice why your credit score is low. The best way to find out if any of these scenarios applies to you is to take a careful look at your credit file. You can get these for free once a year from any credit reporting agency. Go through it and see what applies to you, and if one of the above items is lowering your credit score, you can begin to take steps to improve it.