Sometimes your credit score would be lower than what you thought it would be, even after paying all your bills on time. Here are some reasons why your credit score might be lower than what you expected.
High balance on credit cards
While it’s necessary to pay on time, it’s not enough to maintain a good credit score — you need to be aware of the balance on each card as well.
Credit utilization ratio
The credit utilization ratio is the part of the credit limit you really use — this affects your credit score more than any other factor. Here’s a tip: never use more than 30% of the credit limit on any card; the best credit scores are earned by people who use less than 30% of the limit.
If you have a low limit on a card and want to buy a new television, your score will be reduced if you don’t pay down before the next month. Moreover, credit card issuers report to the credit bureaus every month, and if they report a low balance even once, the past high balances will not have any effect, and your credit score would decrease.
Missed payment playing hide and seek
Even a single payment that is late by 30 days or more will affect your score. Late payments would stay on your credit report for seven years. However, you can make up for the cost by paying several payments on time.
Mixed credit file
If there is no way your credit score could decrease very low, there might be some discrepancy because someone else’s credit is being reported as yours. Or, it’s also possible that someone else has access to your credit card number or has opened a new account using your name. If you notice any unusual activity, you must notify your credit card company immediately. Sometimes, your credit files could be mixed with someone else’s files with the same name.
A recent application for new credit
You would lose a few points on your score every time you apply for a new credit card or loan. The score would decrease as soon as you apply and remain even if you’re application is denied. Moreover, multiple credit applications would place you in a higher risk category, and it’s generally assumed that you wouldn’t be in a position to pay as per the agreement — and higher risk means a low score.
If your score decreased because you applied for too many credits, you must stop applying right away. And the hard inquiries (checks performed after a credit application) would be removed from the credit report after two years.
Default judgments
If your credit score decreased because of none of the above reasons, there might be a default judgment against you and you don’t know about the lawsuit because of an undelivered letter in some rare cases. It might also be “sewer service” where the person suing deliberately does not inform you about the lawsuit and deprive your right to be in court.
