Why is my credit score lower than I thought? Common causes explained.

Wanting to raise your credit score? Check out these common reasons your credit score isn't where you think it should be. 

Have you ever reviewed your credit score and it wasn't at the level you expected? There are many factors that affect your credit score, many of which may cause it to be lower than anticipated, such as:

Late or missed payments.

Payment history is a major component in your credit score. FICO says that it's the most important factor, accounting for 35% of your credit score.

If you miss a payment by just a few days, it probably won't be on your credit reports. However, if your payments are over 30 days late, your credit card company will report them to the credit bureaus as delinquent. This will lower your credit score. If the payment is reported as being 60 or 90 days late, your credit score could drop even more.

If you are having trouble making payments to multiple lenders, consider consolidating your debt:

Derogatory marks on your credit report.

If you have derogatory marks on your credit report, you did not pay your loan in the way that was agreed upon by you and your lender. Derogatory marks on your credit report can include:  

1. Late payment
2. An account in collections (or charge-off)
3. Bankruptcy
4. Lawsuit
5. Judgment
6. Foreclosure
7. Tax lien

There are two ways that you can get a derogatory mark on your credit reports. One way is if a lender or creditor reports negative information about you to the credit bureaus, and then it shows up as a negative mark. The other way is if the credit bureaus add public records to your credit reports. These public records could be things like bankruptcies, civil judgments, or tax liens.

Change in the credit utilization rate.

Your credit utilization rate is another important factor in influencing your credit score and can be used to determine how risky it is to lend you money. Lenders view someone who repeatedly max out their credit limit or goes over it as being more likely to have trouble paying back the money. On the other hand, if you only charge smaller amounts, you may be more likely to pay off your balance in full each month, which means you are seen as less of a risk to lenders.

To keep your credit score steady, the Consumer Financial Protection Bureau recommends keeping your credit utilization rate below 30%.

For example: You have a credit limit of $10,000, but you're usually only spending $1,500 (which is 15% of the limit). If you spend $2,500 in a month, your utilization rate will still be acceptable at 25%. But, if you start spending $5,000 (which is 50% of the limit), your credit score may begin to drop.

Closing a credit card and reducing your credit limit can also cause your credit utilization ratio to go up. The only way to avoid these factors from affecting your credit score is to adjust your monthly spending to maintain a credit utilization rate below 30%. 

Recently applied for or opened multiple lines of credit.

If you apply for multiple credit accounts within a short period, you may be viewed as a bigger risk by lenders. This means that your credit scores could decrease if there have been several hard credit inquiries made on your credit reports recently.

Checking or monitoring your credit report can be done without your credit score taking a hit by using tools like Credit Karma. This doesn't affect your score because it results only in a soft credit inquiry. 

New to credit and have a short credit history.

Your credit history accounts for a large portion of your credit score. The only way to increase your credit score after acquiring your first line of credit is to keep using credit responsibly. Before you know it, your credit score will begin to climb!

Identity theft.

One factor that could be affecting your credit score that most people fear: your identity has been stolen and was used to apply for and open multiple lines of credit in your name. 

If you discover this is the case, don't panic. There are multiple steps you can follow to help reverse the damage done to your credit score:

1. Activate fraud alerts and freeze your credit reports.
2. Change your passwords.
3. Report the fraud information to the Federal Trade Commission.
4. Dispute the fraud on the accounts that were affected.
   
   

Unfortunately, identity theft can happen. It's important to consistently check your credit reports to spot any suspicious activity and to prevent any future fraudulent activity.

Relevant article: The most common scams to avoid in southeast Louisiana

Error on your credit report.

Lenders can make mistakes too. 

Checking your credit report can help you keep an eye on any errors that may cause your credit score to lower. If you do find a mistake, you have the right to dispute it with the credit bureaus (Experian, TransUnion, Equifax) and the lender that reported it. 

Companies are required to investigate disputes without charging feeds and correct and verified errors as soon as possible.

In summary: 

If you notice your credit score has decreased, it's important to find out why so you can take the right steps to improve it. Understanding the cause of the decline is key to improving your credit score.

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