Why Your Credit Score Might Be Low: Top 5 Reasons

What credit score is considered low, and what is just “new”?

Your credit score shows a bank how far it can trust you with money (for the basics, see how credit scores work in the US). Banks most often look at your FICO score, which runs from 300 to 850. 670 and up is good. 580 to 669 is fair: you will get credit, but it will cost more, come with a small limit or require a deposit. Below 580 is poor, and the denials come one after another. The average score in the US is about 714.

A low score and a new score are different things. You’ve been in the US for a year, you have one card and a 640? That’s normal: your history is young, and if you pay on time, your score usually grows on its own. But if you’ve been here three to five years and your score is still below 650 and not moving, something is holding it back.

Reason 1: Too little credit history

An account is any credit card or loan in your report. When you have only one or two accounts, the system has little data. This is called a “thin file”: any small thing makes it swing up and down. And for FICO to calculate a score at all, you need at least one account that is more than six months old.

How to check. Count the open accounts in the Accounts section. If there are fewer than three, or all of them are less than two years old, this is your reason. In five years, Svetlana has had only one card. Her file is thin, even though it isn’t new.

What to do. Add accounts one at a time, not five in a month. A secured card works: a card backed by your own deposit. So does a credit builder loan, a small loan made to build history. Or you can become an authorized user on an older card that belongs to someone close to you with a clean history. And most important of all: time. Learn more about length of history in our article on what makes up your credit score.

Reason 2: Your cards are almost maxed out

Utilization is how much of your card limit you are using. A $1,000 limit and an $800 balance means 80% utilization. For your score, this is a warning sign: it looks like you don’t have enough money of your own. Keep in mind: the bureaus get the balance as of your statement date. Even if you pay it all off the next day, the big number stays in your report.

How to check. For each card, compare the Balance and Credit Limit lines. The further above 30%, the more it pulls your score down. Below 10% is excellent. Svetlana is at 85%: that is one of the main reasons for her 590.

What to do. Pay down your balances, starting with the most maxed-out card. The good news: the most popular score versions only remember your latest balance, not past months. So your score usually responds after your very next statement. To get down to 30%, Svetlana needs to keep no more than $450 on her card, which means paying off $830. For 10%, no more than $150.

Reason 3: Old late payments

Not every late payment ends up in your report. A bank reports a late payment only if it is 30 days late or more. That mark stays for up to 7 years. And payment history is the most important part of your score: 35% of the whole rating. That is why even one old late payment can pull your score down for years.

How to check. Open the payment grid (Payment History) for each account. Look for marks like 30, 60 or 90: that is how many days late the payment was. Or the words Late and Past due. The bigger the number and the more recent the date, the harder the hit.

What to do. A real late payment can’t be erased, but over time it hurts less and less. The main thing is to avoid new ones: set up autopay for at least the minimum payment. And if you paid on time but the bank still marked you late, that is an error, and you can dispute it. Svetlana’s 60-day late payment is already two years old, and it weighs less now. But it will only leave her report around 2031.

Reason 4: Collections and charge-offs

A charge-off means the bank stopped expecting money from you and wrote the debt off as a loss. A collection is a debt that has gone to a collection agency: a bank, a clinic or another company handed it over or sold it. Both entries hit your score hard and stay for up to 7 years, counted from the first missed payment, not from when the debt was sold to a collector.

How to check. Look for the Collections section and the statuses Charge-off or Collection account. Unfamiliar names there are usually collectors that bought an old debt for a phone, internet or a doctor’s visit.

What to do. First, check whether the debt is yours and whether the amount and date are correct. Then agree on payment, and get the terms in writing. Keep in mind: paying does not erase the entry. It only changes its status to “paid.” All types of negative entries are covered in our article on which entries count as negative.

Reason 5: Errors and other people’s debts in your report

Your credit report is put together automatically from the data of thousands of banks and collectors. Errors there are not that rare. Here are the most common ones:

• Addresses, name variations or employers that aren’t yours in the personal information section.
• Duplicates: the same debt is shown twice, by the bank and by the collector, both with a balance.
• A mixed file: accounts of someone with the same last name, or of a relative with a similar name, ended up in your report. There are plenty of Ivanovs, Kovalenkos and Petrosyans in America.
• A late payment that never happened, or a closed account that is listed as open.
• Accounts you never opened, which may be a sign of identity theft.

How to check. Compare every line with what you remember. And compare the three bureaus with each other: if an entry shows up in only one report, that is a reason to take a closer look.

What to do. You can dispute an inaccurate entry by filing a dispute with the bureau. The bureau will check it with the creditor. If the creditor does not confirm the data, the entry will be corrected or removed. You can send a dispute yourself: it is free, and it is your right. And if you don’t have time for letters and bureau responses, Excalibur Credit Solutions takes this work on.

How can you check why your credit score is low in 20 minutes?

Don’t start with an app that shows one bureau. Start with a full three-bureau report. You can get one from the credit monitoring services SmartCredit, IdentityIQ and MyScoreIQ, and one of them is enough. Excalibur Credit Solutions managers also start their review with this same report. Then go step by step:

1. Personal information: are all the names, addresses and employers yours?
2. Accounts: how many are open, and how old is the oldest one?
3. Cards: where is the balance above 30% of the limit?
4. Payment grid: are there any 30, 60 or 90 marks?
5. Collections and Public Records (public records, such as bankruptcy): is there anything you don’t recognize?
6. Bureau comparison: is there an entry that appears in only one report?

Where to find everything is explained in our guide on reviewing your report in 20 minutes. And here is a cheat sheet for the five reasons:

Where to start if you found 2–3 reasons?

When there are several reasons, they add up: a maxed-out card, a collection and a thin file together keep the score stuck. In reports like these, Excalibur Credit Solutions managers usually find not one reason but two or three at once. That is why the order matters:

1. Errors first. There is no point dealing with a debt that isn’t yours.
2. Then utilization, the fastest lever.
3. At the same time, autopay on all accounts so there are no new late payments.
4. Next, the real collections: check the amount, make an agreement, get confirmation in writing.
5. And gradually, new accounts, so your file is no longer thin.

For Svetlana, the order looks like this. First, find out whose $410 collection it is. At the same time, bring the card balance down to $450. Next, autopay, and a second account a few months later. Nobody knows in advance how many points this will add: results vary. But now Svetlana knows what is holding her at 590, and she is no longer guessing.

A detailed plan for growing your score over six months to a year is in our article on the top 5 ways to raise your credit score.