7 Common Causes of a Low Credit Score


Like it or not, your credit report plays a big role in your financial mobility throughout your life. Did you know that 20% of mortgages are now denied in the US and Canada by big bank lenders? The same goes for business loans and other big life decisions you may want to make.

Fortunately, a low credit score doesn’t have to be a life sentence. Let’s talk about some of the most common causes of a low credit score and how King Cash fast loans Canada can help!

1. Missed Payments

This is at the top because payment history accounts for 35% of your credit score, which is the largest portion of any factor. Even if you miss one or two payments out of hundreds, it could drop your score by 60 to 100 points with good credit.

Unfortunately, 60 to 100 points could be the difference between getting a loan or not. Some lenders won’t even lend if they see a missed payment on your history.

It’s okay to be late on a payment if you can handle the fee in the terms of your loan. However, if it is more than 30 days late, it will affect your credit score. After the 60 or 90-day threshold, it will be even worse.

If you have a missed payment (or multiple), simply try to develop a better payment plan with your lender and focus on paying on time each month. If you can’t afford your current payments, like on a high-interest credit card, consider taking out a personal loan with regular, monthly payments.

2. High Credit Utilization

Credit utilization accounts for up to 30% of your credit score, making it the second-largest factor in your score. If you utilize too much of your available credit, it can hurt your score.

For example, if you have a credit card with the Canadian average of a $10,000 limit, you don’t want to leave a balance of more than $2,000. Above the 20% threshold, it won’t necessarily hurt your credit, but it won’t help either.

Conversely, utilization above 50% ($5,000 in this case) will likely impact your score negatively. Maxed-out credit lines will have the most negative effects.

To combat this, you can try taking out an installment loan to pay it down monthly if you have high utilization. Keeping your utilization under 10% will actively help your score, and a lot more quickly than you may think! The negative effects of high utilization won’t last longer than a few months if it’s brought down enough, making this a quick fix!

To clarify, this doesn’t mean you can’t use more than 50% of your credit limit. This factor is entirely about the balance left at the end of each month!

3. Bankruptcy

Of course, bankruptcy can tank your credit score by hundreds of points, and it can last for up to 10 years on your score. However, we didn’t put this at the top because you would know if you filed for bankruptcy. 

If you have filed for bankruptcy, the only way to improve your score is with long-term financial best practices. Taking out no credit check loans or secured credit lines and paying them on time is a good place to start. Just remember that consistency is the key!

4. Closing a Credit Card

Closing a credit card in good standing can hurt your score. 15% of your score is determined by your length of credit history, and that’s for each line of credit.

For fixed installment loans like car loans, there’s not a lot you can do about this. Try to avoid paying them off too early, but 4 or 5 years is fine.

However, keeping your credit cards open and in good standing can last a lifetime, which will only boost your credit score over time. If you’re sick of one of your credit cards, pay for a couple of subscriptions each month to keep it active and pay it off in full every month. Try to avoid closing them unless it’s absolutely necessary.

5. Smaller Factors Adding Up

Your age of credit history, hard inquiries, and credit mix each account for small percentages of your credit score. While these won’t make or break your score on their own, they can certainly add up!

For example, if you receive a few hard inquiries while looking for loans, this will only drop your score by 5 to 30 points at most. This only accounts for 10%, the same as your credit mix.

If you only have one installment loan or credit card, opening another line can help improve your credit mix. Lenders want to see that you can handle multiple types of credit at once.

However, if you’re 21 years old and have only had credit for 2 years, you’re already starting out fairly low. Again, this is because the age of your credit history accounts for 15% of your score.

The only way to combat this is with time, but don’t worry. It won’t play a huge role. Just keep your credit cards open and in good standing, and keep up with your payments.

Improve Your Low Credit Score Today

Now that you know some of the most common causes of a low credit score, put some of these tips to use today and start building your credit score over time. Not all of these are quick fixes, but some consistency and diligence will go a long way over time!

Stay up to date with our latest financial tips, and don’t hesitate to contact us with any questions or for help finding a loan!

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