4 reasons why your credit score is far from improving
Advertisement Disclosure: We earn referral fees from advertisers. learn more
Creditworthiness is usually assessed using credit scores. Most of the time, the higher your credit score, the better your credit score, which means you do better research with potential creditors or lenders.
On the contrary, bad credit usually indicates uncertain credit risk, so lenders usually offer higher interest rates and fewer borrowing options. Therefore, most borrowers would want to improve their credit rating.
The thing is, despite putting in place the right plans and necessary actions, there is a tendency to hold on to a low credit rating. If you are experiencing this, you are in the right place. Here are the four most likely reasons your credit score hasn’t improved recently.
Payment history is the #1 metric when deciding your creditworthiness. It accounts for 35% of your FICO score, a three-digit scoring model based on your credit information that has been used by 90% of top lenders for years. Because of this, late payments usually leave a negative mark on your credit report.
On the plus side, late payments will not affect your credit score unless they are at least 30 days past due. Although most creditors will immediately consider a payment late, even if it’s just a day overdue, and you may even have to pay a late fee, it doesn’t get reported to the credit bureaus.
However, with just one late payment that is a month or more overdue, your credit score will immediately take a huge hit. Worse, it typically stays on your credit report for seven years. That explains why you’re still having trouble increasing your score even though you haven’t made a payment in a while.
It usually takes your credit score about a year to recover from the major damage it has suffered from late payments. While the effects may become less severe over time, make efforts to improve your credit score, for example by opting for automatic payments and consistently making payments on time. Also, pay off overdue bills as soon as possible and request a repayment plan to avoid further damage to your score.
Don’t make a habit of late paying as much as possible. Find a way to pay them on time. For example, if you need money to pay for expenses of about $200 or less, look through your belongings best things to pawn for $200. This will give you the money you need right away.
The credit usage ratio is the total available credit that you use. It has the greatest impact among all the factors that contribute to your credit score from month to month, accounting for 30% of your FICO score.
The rule of thumb is to lower your credit ratio utilization, especially below 20% to 30%, to improve your credit score. It’s better if you keep it closer to 0% to improve your score or build credit quickly. On the contrary, if your balances are higher than this range, it could be one of the reasons why your credit score is not improving.
Credit limit reductions are commonly applied to revolving credit accounts for a number of reasons. This includes limiting the borrowing risks of new customers when existing borrowers underuse or overuse their cards, or when the economy is in turmoil.
If you’re not a new customer and your lender lowers your credit limit, you’re more likely to exceed your limit, especially if you’re used to a higher limit. This increases your credit utilization rate, which consequently affects your credit score.
In these cases, contact your credit card issuer to increase your credit limit and lower your utilization. Then pay off your current balance to increase your approval rating. If you run out of money, consider asking online rental companies for help.
Alternatively, you can open a credit card for the balance transfer. It can increase your overall credit limit, which in turn lowers your credit utilization rate. Additionally, you can cash out your balance faster if you qualify for a 0% introductory rate. If that doesn’t work, consider living below your means and cutting back on your credit card spending.
Late payments are an example of a derogatory mark on your credit report. Other derogatory points that banks or credit bureaus place on credit reports are direct debits (ie, an account in collection), bankruptcies, foreclosures, judgments, tax liens, and lawsuits.
While negative grades don’t make up your credit score, they do affect it negatively for nearly a decade. Unlike hard credit inquiries, which fall off your credit report after two years, derogatory notes stay on your reports for seven to 10 years.
Luckily, as mentioned earlier, late payments and other derogatory signs decrease over time. In addition, they could be removed from your credit reports, especially if they are not legitimate. Just contact professionals to check. If it’s just a mistake, contact credit bureaus to dispute it.
Your credit score doesn’t improve overnight. Based on yours current status, it takes about three months or more persistent effort. While the wait can be stressful for most credit-conscious consumers, it will be worth it. As the saying goes, hard work brings success.