Various Causes of Low Credit Score
In most cases, people think that timely payment on credit facilities accords them a good credit score, but it is not so always. If you want to invest through taking a loan facility, you know the importance of a good credit score. Luckily, in case your credit score is low and you are looking to improve it, we look at what may be pulling your scores down.
New Credit Card Application
A new credit card or loan application may make your credit score dip. Most people are unaware of this and end up shocked by the low scores. Whenever you apply for an additional card or loan, creditors deem you to be a high credit risk by financial institutions. Unfortunately, the score drops whether you got the card you applied for or not.
The report on your low scores and numerous card application reflects for two years. The solution to this is to stop using multiple cards. It is always best to have a few cards say two or three, at the most ones that you pay promptly and do not exceed the credit limit set.
Higher Balances on Your Credit Cards
Maintaining high balances on your credit cards hurts your scores even if you make timely payments. The credit aggregator measures your credit utilization against the portion of the credit limit you have. No matter how tempting it may be, try not to go above 30% of the limit on your credit card. People with less than 30% usage of their credit limit often have a high credit score.
Missed or Late Payments
This is the most commonly known cause of low credit score, and most people assume it is the only cause. Unfortunately, there are no second chances with late or missed payment, and one single late payment causes your scores to plummet. The delayed payment reflects on your credit report for a long time, at up to seven years.
Recent High-Value Purchase Using Your Credit Card
This may come as a surprise to many people but making big purchases on your credit card hurts your credit score. It happens even if you pay up the entire balance on or before the due date. However, this affects your credit score it makes your card balance get close to the limit. Credit card companies report credit balances as of the final day of the billing cycle. Your credit card balance statement primarily reflects on the credit report.
