Why is My Credit Score so Low?

“Why is my credit score so low?”  Or “I don’t even own a credit card, why is my score so low?” Or, “I pay cash for everything, why isn’t my credit score better?” Or, “I pay cash for everything, why do I need credit?”

I hear questions like these often and would like to break it down for you so should the situation ever arise (buy a car, buy a house, refrigerator stops working and its 10 days till payday) you and your credit scores will be ready to obtain financing.

If you don’t have credit or happen to have a low credit score you will either be denied credit or you may be approved but at a higher interest rate. A higher interest rate will cost you more money in the long run than someone with a higher score that obtains a lower interest rate. In other words, you will pay more for the very same item than someone else that finances a same cost of item and same length of time to repay the money owed but receives a lower interest rate because their credit scores are higher. So basically it is important you show creditors you deserve the lower rate by maintaining your credit in a good standing by paying your bills on time and most importantly being responsible with the credit that is extended to you.

Making your payments on time is the biggest area your credit score is based on. If you have no credit cards or loans to show that you always pay on time then your score will begin to drop since there is nothing to base your payment history on.  creditscoregoingupmsicredit

In other words, credit reports are kind of like getting grades in school on your report card. If you make your payments on time and do not cause creditors to send your account to collections you will get a better score, like A’s and B’s on a test will give you a higher grade on your school report card.

Did you know that your credit rating is also based on other factors? To obtain the best score possible you will need to have a good mixture of credit, (installment loans, credit cards etc) as well as having a good payment history and a low credit ratio meaning low balance on credit cards compared to your limit on the credit cards. If you do not have credit cards to make payments on then there is no way for the credit bureaus to “grade” your credit and give you a score therefore your credit score will start to drop over time. The length of history along with credit mix, new credit, and your payment history and how much you owe are the determining factors to issues a credit score. Your payment history actually makes up 35% of your credit score so you can see how important it is to have credit cards and how much you owe makes up 30% of your credit score so it is also very important to use them wisely and pay more than the balance owed each month. I will cover these other areas in more detail in a future blog but for now be responsible with the credit that is extended to you if you ever want to see your scores increase. Until next time….

Don’t overspend on your credit cards!

Don’t max out your credit cards.Team Jefferson Home Loans - The Colony - TX - 75056 - 866-403-1426 - Home Loans - Mortgage - Buying a home - VA home loan - FHA home loan - Refinance - Credit

Do make your payments on time.

Do pay more than the payment owed, (minimum monthly payment) when possible.

Do keep your credit card balances low.

If you have inaccurate items on your credit and would like clean up your credit check out our Facebook page “Like” and send us a message. We respond quickly to answer your questions and you just might be the inspiration for my next blog.

For more information check out the links below.

Is it okay to miss a credit card payment?

Interest Rates are going up, how can you improve your credit quickly so you don’t miss out on that dream home?

Ways to correct credit before you buy a home.