Why Is Your Credit Score Low When You Pay Your Bills on Time?
June 04, 2018
There are many factors that go into determining your credit score. One of the main factors is paying your bills on time. But there are other factors that affect your score that you may not even be aware of. Below are a few items that you can control and help your score.
- Having too many inquiries. If several companies are pulling your credit score, this may pull your score down. If you are comparison shopping for interest rates and terms for an item such as a car, it is best to do so within a short time span such as 14 days. This will do less damage to your score than doing so over a longer course of time.
- Small, overdue charges. It is best to pull your credit report once a year (for free) from one of the three credit reporting agencies to check for any old accounts that have not been settled such as old medical bills or even telephone charges. If any of these accounts are turned over to a collection agency it can have a negative impact on your credit score. It is best to contact these companies and pay off these charges or settle to remove them from your credit report.
- Mistakes are made. Yes, even the credit bureau makes mistakes and it can be to your disadvantage. Please do review your report once a year for mistakes that can be corrected. Although it can be a time-consuming process but well worth it when you are ready to purchase a new home. Don’t let a surprise sneak up on you.
- Credit Availability. Even if you pay off your credit card balances on time each and every month, if you max out credit cards, this will lower your score more than you may think it will. The best scenario is to use a small percentage, such as 10%, of the credit amount that is available to you. This is your credit utilization ratio and will pull your score way down if you utilize all of your available credit consistently.
- No credit. For whatever reason, you choose to not use credit. But this is one of the worst things you can do. Not having a credit history does not show that you take responsibility for your credit and can effectively manage your credit. Even if you have inactive accounts that are frequently closed, this too can hurt your score. Again, lenders like to see a small amount of available credit being used wisely.
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