Why do I have a low credit score?

• Tweet

March 10th, 2011 - Posted by Tasha

Q: Why do I have a low credit score?

A: Good question, and I'm sure one that many people wonder about.  Credit scores were created as a quantifiable way to measure and rate an individual's credit history.  There are a number of agencies that create different branded credit scores, and they all use their own secret formula to do so.   In general, it's impossible to say exactly how important any single factor is in determining your score, especially since I'm not aware of your credit history.  However, most agencies look at the same basic information to create your score, which can be broken down into the following categories:

1.  Your payment history. This includes your account payment history (have you been paying your bills on time), the number and degree of past payments that might be overdue, and whether you have any bankruptcies or other public filings in your credit history.

2.  The amount you owe. This includes how much you owe, how many accounts you owe on, and your balance ratio (the proportion your balances to total credit limits).

3.  The length of your credit history. This includes how long you've had our credit accounts open, the type of accounts they are, and how long it's been since there has been any activity on your accounts.

4.  New credit. This includes how many accounts have been opened recently (and the type of account),  any recent credit inquiries on your credit file, and whether you've been able to re-establish a positive credit history following past payment problems.

5.  Type of credit. This takes a look at how different many types of credit accounts you have.  For example, credit cards, mortgages, retail accounts, etc.

If you have issues in any of these categories, it is likely your credit score will be affected.  However, I'd like to note that your credit score is not the only factor that creditors look at when determining whether to extend you a loan.  See our past blog post to learn what other factors creditors examine prior to issuing a loan.

If you're interested in tracking and improving your credit score over time, consider signing up for a credit monitoring service like IDENTITY GUARD®.  Identity Guard provides daily 3-bureau credit report monitoring with email alerts and your credit scores from all 3 bureaus.  You'll also have access to Identity Guard's credit analyzer.  The credit analyzer lets you try different financial scenarios, like opening a new credit card or paying off your card, to see how your score will change. This is a convenient way to see how the financial actions you take can increase or decrease your credit score.  You'll get updated credit scores every 3 months, so you'll be able to see how the efforts you're making improve your score.  Right now Identity Guard is offering a free 30-day trial, and then a 15% discount on monthly payments, so it's a great way to test drive the service and see if it's for you.