There are a variety of reasons that a credit score can be low.
Judgments and Liens affect your credit score adversely. The more recent they are, the more they lower your credit score.
Collections and charge-offs also lower your credit score. Again, the more recent, the more they lower your credit score.
Late payments on installment loans, mortgages and revolving accounts, such as credit cards also lower your credit score.
Your credit score is made of the following 5 criteria
- Payment History - 35% Impact
- Outstanding Credit Balances - 30% Impact
- Credit History - 15% Impact (Length of time established)
- Type Of Credit - 10% Impact (Mix of mortgage, auto & revolving preferred)
- Inquiries - 10% Impact
Negative credit information affects your credit score for seven years or more. Late payments can affect your score almost immediately, but it can take 6 to 12 months of paying on time to start seeing a positive effect on your score. Financial difficulties from five or more years ago can still significantly affect your score.
When your balances are high in proportion to your limits on credit cards, this negatively impacts your scores! For example, if you have a $300 credit limit, you should NEVER put more than $150 MAX on this credit card. The best advice is to never charge more than 15% of your total available limit and pay it off IN FULL every month. The idea that carrying a balance on your cards helps your credit is simply a myth.
Something you can do to see a fairly immediate impact on your scores is to spread your debt across all of your debtors more evenly. For example, if you have a $9,000 debt with AMEX with a $10,000 limit and a $10,000 VISA with no balance at all, split the $9,000 debt across both cards. This will
a) Give you the opportunity to take advantage of a 0% balance transfer rate for 6-12 months that many companies provide and
b) Lower the Loan-to-Value on the AMEX card from 90% to 45%, giving you an immediate boost to your FICO score.
Excessive inquires on your credit file will also negatively affect your credit score. Each time your credit report is pulled it will lower your score down a bit. If you are shopping for a mortgage and your credit is pulled a few times in the same week or so it will only count once. Asides from that, lenders and credit grantors will sometimes see excessive inquiries as a sign of desperation to open up credit accounts.
Excessive inquiries raise questions as too, how much debt have you taken on. If there are too many inquries, then you might have open way too many accounts and won't be able to take care of the mortgage you are applying for.