After a long search you’ve finally found out who’s dragging down your credit score.
Surprise! It’s you.
Your credit score reflects your entire credit history as recorded on your credit report. Lenders and creditors report your account activity to each of the three major credit reporting agencies (Equifax, Experian, and TransUnion) – whether that activity is positive or negative.
It’s possible your credit report contains reporting errors that are dropping your score – or worse, identity thieves are running up unexplained charges on your credit report or establishing fake accounts in your name. Get a copy of your credit report and address any mistakes or fraud immediately. If you would like to monitor your credit to prevent identity theft and see your credit report and score for free, join MoneyTips.
Is your credit report accurate and free of fraudulent activity? If so, you know who’s to blame for your poor score. You’re probably engaging in one or more of these seven credit score killers.
1. Missing Payments – Payment history is the number one factor in your credit score. Missed payments can last on your credit report for up to seven years. The effect of a single missed payment will lessen with time – unless you miss more payments and show a pattern of erratic financial behavior.
2. Using Too Much of Your Available Credit – Credit utilization, the amount of credit you are using compared to your credit limit is a large component of your credit score. If you are nearing your credit limits, lenders will think you’re overextended and refuse new loans or lines of credit. Try to keep credit utilization below 30%. Staying below 10% of your limits (both overall and for each individual account) provides the best results.
3. Closing Old Accounts – The length of your credit history is the third most important factor in your credit score. That includes how long an account has been open, and how long it’s been since you used the account. If you close old accounts, you’re doing double harm to your score by increasing your credit utilization and lowering the length of your credit history.
4. Opening Too Many New Accounts – Applying for multiple lines of credit suggests to lenders that you’re preparing to spend more than you can afford. Maybe they’re right. Do you really need more than one new line of credit?
5. Accounts in Collections – Debt collectors also report account information to the credit reporting agencies. Accounts that typically don’t affect your credit score, such as utility, cable, phone, or rent payments can affect your credit score when they are turned over to a collection agency.
6. Never Using Credit – If you don’t use credit at all, how can you have a bad score? It’s because you have no recent credit history. Potential creditors have no way to tell if you are capable of handling credit now, even if you handled it well in the past. Make small charges on your account regularly to maintain credit activity (and be sure to pay them off).
7. Never Checking Your Credit Report – As noted above, your credit score could tank as a result of errors or fraud without your knowledge – until it’s too late. You can’t fix a problem if you don’t realize you have one. It also helps to check your credit report regularly to see how your actions affect your score.
Want to find out why your credit score is low? Check your credit report to verify that there are no reporting errors or signs of fraud – and then study your credit report to see where you need to improve. Don’t look for excuses – look in the mirror instead.
You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
Photo ©iStockphoto.com/AndreyPopov
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