Last month, I listed a few ways to boost your credit score in one month. In the post, I talked about the thrill of looking at my score each month. Yeah, I get that’s kind of weird. But, I love seeing how I am improving my score and seeing what works and what doesn’t. While I continue to increase my score, I know that there are still things holding me back from having a higher score. Now, there are some things you just can’t control (I’ll list those as well). However, there may be a few hurdles you can overcome.
While you’re working on improving your score, make sure you address these top reasons you aren’t getting a better credit score.
You Made a Few Late Payments
Paying your bills on time shows lenders that you are responsible and practice good credit behaviors. It shows them that you are less of a risk. Would you want to loan someone money who is constantly late on paying you back or still owes you from the last time? Lenders don’t want to either.
Your Available Credit is Low/Your Balances are Too High
These two go hand in hand. The more credit you have available, the lower your credit utilization rate may be. On top of that, the lower your balance and higher your credit limit, the more money you have available, which may keep you from seeking out more loans or more credit cards. Having lower balances also shows lenders that you may be more responsible with your money.
Try to pay off more of your balances to lower your debt and increase the credit available to you. Continue to make payments on time. After some time showing you are able to successfully manage your credit, you can ask your lender to increase your credit limit.
Please note: if your lender increases your credit limit, that doesn’t mean you can go on a spending spree. Use the increase in limit to improve your score – keep your spending the same (or less). Do not spend more just because you think you have more money available.
Your Credit Isn’t Diverse
Lenders like to see that you can handle different kinds of debt. Student loans, auto loans, real estate (mortgage) accounts, and credit cards are all different types of debt.
Your Accounts are Too Young
The older your score is, the more experience you have managing your credit. There is not much you can do with this except to be patient and continue practicing your good credit behavior. Also, do not get rid of your oldest account and make sure it stays active. And, refrain from opening new accounts (see below).
You Have Too Many New Accounts
Opening a bunch of new accounts may be a red flag to lenders. It may show that you are desperate for money and therefore are not responsible with your finances.
Another reason is that new accounts affect the age of your overall credit history. The age of those new accounts gets included in the equation when it comes to figuring out your credit history. It is included in the average age of all of your accounts, affecting the calculation and making your history younger.
You’re Not Using Your Accounts
Not using your accounts can have a negative impact on your score. Using all of your accounts – from time to time – demonstrates good credit behavior. Now, I am not telling you to go spend a ton of money on each card. Just, every now and then, use a card to make a small purchase – and then pay it off immediately. For example, use a card you haven’t used in some time to buy a candy bar at the store. Be responsible when using these cards. Make small purchases only. I have a few store credit cards (did I mention I was credit-dumb when I was younger?), so for those, I will buy the cheapest stuff I can (body spray, socks, etc), that I have the money for and immediately pay them off when I get back from shopping.
Your Real Estate Balance is Too High
This one definitely got me. I was told that having a mortgage will improve your credit score (see diverse accounts above). That is true… eventually. But first, your balance is so high, it brings your score down, down, down. That’s what no one told me. So imagine my surprise and terror when, the first month my new mortgage appeared on my credit score, I saw that my score fell 20-something points. There isn’t much you can do with this one except continue making payments to bring your balance down and be patient. It will eventually really help your score.
When it comes to credit, don’t be risky. Many of these tips are for those who can handle their credit responsibly. Do not open more accounts if you are having trouble managing the ones you have. Do not open new accounts or ask for a raise in your credit limit if you just want more money to spend. If you are going crazy with credit cards, maybe it is best to close a few accounts. Always only open the accounts you need. Be responsible, have some willpower, and be patient with your credit and you’ll reap the rewards with a higher score in the future!