Top Six Reasons Your Credit Score Is Stagnant

Credit Score

Your credit score is a huge determining factor when it comes to your financial life. It’ll determine what type of terms you’ll get when applying for a mortgage, personal loan, an auto loan, etc. 

By now, though, you know that a poor score may hamper your efforts in taking out a loan. If you’re lucky enough, you may get the loan, but at a high interest rate. On the other hand, someone with an excellent credit will have an easy time applying and even better, they’ll get favorable rates.

Because of that, financial experts recommend keeping an eye on your score. However, what do you do when every time you check, it’s at the same low number as the last time? It’s frustrating and even worse is chances are you don’t know where the problem lies.

Different factors affect your overall score, and it’s okay for a person to find it difficult to improve this three-digit figure. Nevertheless, you can find the problem, take measures to correct it, and later get back on track with your quest for a better score. If you’re one of those people who check their scores only to end up disappointed with its stagnation, here are some of the probable reasons.

Too Much Usage of Available Credit

This is the most probable cause why your credit score doesn’t seem to get a nudge. You see, there are five factors that determine your overall score. Of these five factors, your credit utilization takes the largest percentage. Credit utilization is the amount of credit available versus the current credit being used. According to financial advisors, it’s best to keep this ratio under 30%, the lower the better for you. Let’s use an example to get a clear picture. 

Let’s say your total available credit is $10,000. You want to maintain your balance at $3,000 or lower. Therefore, if you exceed this mark, even by a little, chances are your score will take a hit and this will be detrimental to your financial health.

You’ve Skipped Payments

Obviously, missing a single payment can hurt your score. It’s even worse if you miss two or more. However, it’s important to realize that lenders searched via this website will give borrowers a 30-day grace period. Therefore, missing your monthly payment by two weeks is unlikely to cause any damage to your score. However, once you cross the 30-day mark, your score will take a massive hit. 

Keep in mind, one skipped payment will take at least a year for your score to recover. If you’re way overdue with even a single payment, that is a good reason why your score isn’t seeing any improvement.

You’re Applying for Too Many Accounts 

Every time you apply for a new credit account, the lender will make a credit check, called a hard credit check. There are soft and hard credit checks, and the latter can slash some points off your score. One hard check will not be detrimental to your FICO score (the most common type of credit score) and will lower it only by a few points – not more than five. 

However, the problem will come in once you start applying for multiple credit accounts too often. If you pile up these checks, say for example 6 checks, this translates to up to 30 points off your score. If your score hasn’t been on an upward trend, this may be the reason why.

You Have Little to No Credit History

One of the factors credit bureaus consider when calculating your overall score is credit history. Typically, if you have an extensive history, that’s better. If you opened an account within the past year, chances are it may not have a long history compared to someone who opened an account over 3 years ago.

Therefore, to make progress on your score, it’s wise to build your credit history, but this will only happen with time. As your account gets older, your score will improve. Often, people who open multiple credit cards face this problem.

Major Negative Entries on Your Report

You may have encountered a difficult financial period in the past that led you to take certain drastic measures. One of them could be defaulting on a loan or your account went to collections.  

In some instances, it may not be your fault, but that of the reporting agencies. Did you know that up to 25% of account holders have negative entries on their credit reports that were not of their own making? Such events will cause a drop in your score. Even worse is that these events will stain your credit for a long time – up to 7 years.

Therefore, if you have such negative entries on your report, prepare for a long journey ahead toward recovery. Nevertheless, you can take preventative measures to avoid wrongful negative entries. One is by requesting a report from all the three leading reporting agencies at least once a year.

You can review these reports to find out whether there’s a wrong entry. If you come across any, consider alerting the agencies for immediate action. Otherwise, this will harm your score.

Your Credit is Already Excellent

Generally, as your score gets higher, it becomes even harder to maintain the same upward momentum.  For someone whose score is between 500 and 700, it’s possible to gain a few points just by staying away from trouble. 

For example, maintain a low credit utilization ratio, make on-time bill payments, and your score will experience a steady rise.

After your score enters the 700 range, it’ll be hard to increase it. It’s not impossible to improve the score, but you’ll hardly notice any change. 

Therefore, it’s important to know that getting your score to the desired level requires hard work, but then you should also take the time to consider whether it’s worth the effort and time. Once your FICO Score hits 760, it is considered excellent.

Over to You

Improving your score is an uphill task often filled with multiple obstacles that threaten your dream of financial freedom. However, it’s important to keep in mind these frustrations are normal.

It may take you months or years of discipline to get to your desired score. The pointers above can be solutions to your stagnant score, and now that you know the probable causes, it’s time to take control of your financial life.