Why Is My Credit Score Low? It Might Be These Five Things

If you are planning to apply for a loan, we suggest looking at your credit score first. It’s THE component that makes up your ability to borrow money. It determines how large the fee and interest rate are that you will be charged to borrow money on. Your credit score also determines things like your ability to get a cell phone, rent an apartment or get job that requires a background check.

The following chart shows what score falls under which range for the big three credit reporting companies:

Credit Score Range	Equifax	Transunion	Experian
Excellent	760 – 850	881 – 850	800 – 850
Very Good	725 – 759	721 – 780	740 – 799
Average	660 – 724	661 – 720	670 – 739
Fair	560 – 659	601 – 660	579 – 669
Poor	280 – 559	300 – 600	300 – 578

Per consumer affairs, interest rates on a personal loans are between 10% and 30%, with the average being 11.48% (here). This is usually offered to people who have a good credit score. If the borrower has a Poor or Fair credit score, this interest rate will rise significantly – going as high as 30%.

Some lenders also charge an origination fee, usually between $200 and $250 but can increase if the loan amount you have applied for is high.

Now that you know how big of a role your credit score plays in getting a loan, let’s take a look at how you are hurting it:

Reaching Your Credit Card Limit Every Month

You pay your bills on time and have never defaulted on any payments. However, you rack up a high balance every month by maxing out your credit cards. Despite your timely payments, this can be a huge problem.

Credit utilization amounts to 30% of your credit score. Since a lender will check your credit history, he will see the maxed-out credit cards as a red flag. This is why you need to keep your credit card balance low. If your credit card has a limit of $10,000, try to spend between $2,500 and $3,000 in a month.

Failing to Check Your Credit Report

Your credit history is of great importance to a lender. It shows him how responsible you are as a borrower. Let’s say your identity gets stolen, and someone starts making unnecessary and costly purchases under your name. You find this out when you apply for a loan and your credit report is checked. You will then have to contact the police to fix this immediately.

Sometimes, mistakes happen from the credit bureau’s side too. Even if you are not at fault, the credit report says otherwise, which is why it is important to get a copy of your credit report every year and check if it has any negative markings that you can dispute.

Not Using a Credit Card at All

Some financial advisors out there recommend that you don’t use a credit card at all. If you think about it, the advice does make sense: No credit card. No debt.

However, what if you want to borrow, like a mortgage for your house, in the future? However, when you borrow a huge amount such as $250,000 for purchasing a house, it’s important to have a credit history because it will help the lender decide whether you are a reliable candidate. And, even if some people don’t like, responsible use of credit cards does help your credit score.

Becoming a Co-Signer

A co-signer is a person who takes responsibility for a loan that someone else has applied for. Becoming a co-signer for someone with poor credit is like giving your credit score cancer. If the borrower defaults on a payment, the responsibility will fall on you. If you don’t make the payment, the negative marking will go on your credit report, lowering your credit score.

Closing Accounts You Don’t Use

Another factor that impacts your credit score is your credit history’s average length. Closing down old cards you don’t use sounds like a good idea. However, by doing so, not only do you reduce the amount of credit you can borrow, but your credit utilization also increases because you now have fewer accounts.

This doesn’t mean that you should use multiple credit cards at a time. Simply set aside the old ones and preserve your credit report to strengthen your application.

Don’t let these kind of mistakes harm your credit score, or you won’t be able get bigger loans in the future. Even if a lender does agree to lend you the money, they will most probably charge a high interest rate. Moreover, it’s also possible that they might ask for collateral. In this case, if you default on the payment, the lender will seize your personal asset.

Lastly – Don’t Pay For Your Credit Score

Lastly, don’t pay for your credit score. There are plenty of ways to get yours for free. For example, many credit unions and banks offer credit score information free to their account holders.

Companies such as Credit Karma will also give you your credit score for free. The reason they do this is to give you an incentive to use their platform so they can sell you credit card offers. You can find Credit Karma here. Also, the federal government mandates that the big three credit reporting agencies (Transunion, Experian and Equifax) let you check your credit score once a week for free. You can find the website that lets you do that here => annualcreditreport.com.