Poor credit score report on wrinkled paper with pen and calculator

What Are the Causes of a Low Credit Score?

About 11% of Americans have low credit scores. A low credit score is categorized as any score that’s 550 or below.

Sometimes people do not understand why they have a bad credit score or even how to build credit. What lowers a credit score, anyway?

If you’re wanting to increase your credit score, it’s important to know what factors cause it to lower in the first place. Here are five reasons you might have a low credit score.

1. High Debt

One of the main reasons that you might have a low credit score is because you have a high revolving balance. A revolving balance is a balance that spills over a month to month. When this happens, it lowers your credit score.

In order to have a higher score, you want to pay your balances in full or close to full.

2. Missed Payments

Your creditor will have a payment due date set for you. If you miss these payments, your credit score will drop.

Missed payments are another main reason for low credit scores. While a few days late is unlikely to set up any red flags on your credit report, missing 30 days or more will.

If you continue to miss payments, your creditor might issue you a judgment. This means they’ll demand the money owed. However, you may be able to remove credit report judgment.

3. Identity Theft

In the United States, 47% of people filed for identity theft in 2020. Identity theft is a crime, and it can leave a negative impact on your credits score.

However, many people don’t know they’re victims of identity theft without checking their credit scores. This may come as a surprise, which is why it’s so important to check your credit score periodically to catch suspicious activity. You can dispute charges with the credit bureau to clear up fraud.

4. Credit History

Some people have a long credit history, while others are fairly short. The length of your credit history matters in your credit score, and shorter credit history may contribute to a lower credit score. It’s important to know that in the case of credit history, a low score doesn’t equal a bad credit score, it’s simply based on length of history.

To improve your score, use your credit and pay it off in a timely manner.

5. Opening New Accounts

Have you recently opened a new account or inquired about doing so? To see if you’re eligible for credit, the creditor will look at your credit report, and this is called a hard inquiry. When they do so, your credit takes a hit and may impact your score.

By opening or applying for several cards or loans at once, you’re showing lenders that it’s risky to lend to you. If you need to shop around for a loan or card, refrain from doing so all at once.

Low Credit Score? Don’t Panic

A low credit score doesn’t always mean that something is wrong. In many cases, there may be mistakes or areas to improve. A credit score is flexible, so take steps today for building credit.

Are you looking for more finance tips? Check out our business and finance articles today to keep your finances healthy and thriving.