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Table of Contents
- 1. You have a high balance on one or more credit cards
- 2. There's a missed payment lurking on your report
- 3. You are new to credit and have a short credit history
- 4. Your credit profile is too one-dimensional
- 5. Identity theft or a mixed credit file is dragging you down
- 6. You applied for new credit recently
- 7. There's a default judgment and you don’t know it
- 8. You already have excellent credit
Your credit score can be frustrating. Maybe it's lower than you thought it'd be, or maybe it's stubborn and won't budge — no matter what you do. Either way, you probably want to know why and what it will take to elevate it.
A stubborn score can be especially perplexing if you thought you always paid on time and expected to have a good credit score. Here are eight reasons your score may be stagnant or you may be in a lower credit score range than expected.
1. You have a high balance on one or more credit cards
The portion of your credit limit you actually use is called your credit utilization ratio, and it's the second-biggest influence on your credit score. The ratio is figured on an overall and per-card basis. Aim to use no more than 30% of your credit limit on any card; the best scores go to those who use less than that.
Here's how credit utilization works in practice: Say you have a $3,000 limit on a card and you use it to buy a new refrigerator that costs $2,000. You've now used roughly 66% of your available credit and, in turn, increased your credit utilization ratio. Your credit score will likely drop until you get your balance at that 30% or below threshold (in this case, $1,000 or less). For bigger purchases, it might take a few months of payments to make a dent, but with consistent on-time payments, your score should rebound.
In the case of credit utilization, timing is everything. Credit card issuers typically report to the credit bureaus every month. As soon as a lower balance is reported to the credit bureaus, that past high balance will cease to hurt your credit.
2. There's a missed payment lurking on your report
Payment history, or your record of on-time payments, is the most important factor FICO and VantageScore use to calculate your credit scores. That means a single payment that is 30 or more days late can send your score plummeting. Worse, late payments stay on your credit report for up to seven years.
The impact of a payment mishap fades with time, though. Continuing to pile up a streak of on-time payments will help offset the damage, but recovery will take longer than with high credit utilization.
Automating your bill payments is one way to never miss a deadline, even when life gets busy. Most banks will let you set up bill pay options online or through their apps. You can even negotiate due dates to make sure you have the funds to pay each bill on time.
3. You are new to credit and have a short credit history
There’s a general rule when it comes to credit: The longer your credit history, the more favorable your score. Lenders like to see that you have a documented history of on-time payments when assessing your creditworthiness.
But there isn't much you can do to age your credit other than keep your accounts open. If there's a card in your wallet not getting much use, putting a smaller, recurring expense on it signals to the issuer not to close the account for inactivity.
You might also consider becoming an authorized user on a trusted family member's credit card, especially if they have been using credit for a while. You can potentially benefit from their lengthy credit history — and lower your credit utilization by raising your total available credit — without the worry of an added bill. Because your credit doesn't need to be checked to become an authorized user, there won't be a hard inquiry to ding your score.
4. Your credit profile is too one-dimensional
Credit mix is the diversity of your accounts, and it's a small factor in calculating your credit score. Ideally, it's good to have a variety of revolving credit and installment credit in your portfolio.
Revolving credit accounts have variable balances each month, like a credit card. Installment credit accounts have fixed payments and terms, like a car loan, mortgage or student loan.
Adding diversity to your credit usage can help boost your score, but it's less important than paying on time and keeping your credit utilization low.
5. Identity theft or a mixed credit file is dragging you down
A much lower score than you expected might mean that someone else’s credit activity is being reported as yours. This could be because a criminal is using your credit card number or opening accounts in your name. (If this is the case, notify your credit card company immediately.)
A lower score could also be caused by a mixed credit file. This might happen if you have the same name as someone else and your credit files have become intermingled.
Both issues should be disputed with the credit bureaus.
6. You applied for new credit recently
Every time you apply for a new credit card or loan, you could lose a few points on your score. That’s true whether you’re offered and accept the credit product or not. The reason? Multiple credit applications are associated with a higher risk that you won’t pay as agreed, and higher risk equals lower score.
If your score suffered from too many credit applications, the solution is to stop applying. The hard inquiries on your credit disappear from your credit report after two years. Even better, the effect on your credit score fades much sooner than that.
When you do decide that it's time to apply for a new credit card, make sure to research which ones best fit your financial needs and which you're eligible for based on your credit score. That way, you need to submit only one application and the impact on your score won't be as dramatic.
7. There's a default judgment and you don’t know it
It’s possible there’s a default judgment against you that you don’t know about. A default judgment — sometimes called an automatic judgment — occurs when you don't respond to a lawsuit and the judge decides the case without you being present. These lawsuits are often filed by creditors.
There are a few reasons why you might not know about a default judgment. If a letter was misdelivered or not forwarded properly, you might not even know a lawsuit has been filed against you. Or, it could be a “sewer service,” in which the person suing intentionally fails to notify you of the lawsuit and your right to be in court. It’s called that because it’s basically the same as throwing paperwork down the sewer. Whatever the cause, the implications for your credit could be steep.
Your credit report contains information from public records, and that might be how you find out there’s a default judgment and you are in collections. In that case, you can decide whether you want to accept the judgment, settle it or challenge it.
8. You already have excellent credit
The higher your score climbs, the more challenging it is to see movement. Though there are steps you can take to continue to improve, progress will be slower. Conversely, the lower your score, the easier it is to see bigger jumps.
A gentle reminder: Attaining an 850 credit score — the highest possible score — might seem like a worthy goal, but it's nearly impossible to stay there forever. Also, you don't need to be at the top of the excellent range (720-850 on the commonly used scale) to get the best rates and terms.
Credit scores are always shifting, even by a few points. Focus more on sticking with the financial behaviors that got you an excellent score to begin with.