Reasons for Low Credit Scores

The use of credit affects many aspects of American life. Credit checks are often performed when you apply for a loan or credit card. Nowadays, your credit also can affect whether you'll qualify to rent an apartment or receive a job offer. Maintaining a good credit score is important if you want to receive the best interest rates and enjoy solid financial success. There are several key factors that can affect your credit score.

Late Payments

According to Fair Isaac, the inventors of the FICO credit scoring model, how you pay your bills accounts for 35 percent of your credit score. Late payments will drop your score, and the later the payment the worse impact it will have. In other words, a 90-day late payment is more damaging than 30 days late. Always pay at least the minimum amount on your credit accounts each month.

Too Much Debt

Another 30 percent of your FICO score is the amount of debt that you owe. The closer you come to the credit limit on your credit card, the more negative an impact it will have. Maxing out a credit card is dangerous because it places the amount you owe beyond the amount of available credit that you have and drops your score. Keep credit card balances as low as possible, or pay them in full each month. Also pay down the other types of credit that you have: car loans, mortgages and student loans.

Public Records

Bankruptcies, collection accounts, judgments and liens on your credit report are items of public record that indicate you did not honor a particular debt obligation. In some cases, like with judgments, it also indicates that the creditor took legal action against you in an attempt to collect the debt. An item in this category will significantly lower your score. Payment of these types of items will not immediately undo the damage to your credit score.

Too Many New Accounts

Applying for credit places an inquiry on your credit report. New credit accounts for 10 percent of your FICO score, so applying for credit periodically is a good thing, but applying for numerous credit accounts within a short period of time will lower your score. A lot of inquiries indicates to lenders that you are searching for credit because you are in financial distress. Apply for new credit only if it's needed. Avoid signing up for instant store credit just to receive a small discount on a purchase if you want to protect your credit score.

Errors on a Credit Report

Under the Fair Credit Reporting Act, consumers have the right to dispute erroneous information on their credit reports. By law, bureaus must investigate and correct inaccurate data on the report. You can file a dispute on the credit bureau's website, by phone or mail. The FCRA gives the bureau 30 days to respond to your request. Under the Fair and Accurate Credit Transaction Act of 2003, consumers are allowed one free report each year from the three major bureaus: Equifax, Experian and TransUnion. Congress established a website to facilitate the ordering process for consumers: annualcreditreport.com. You can also order the free report directly from the credit bureau website, by phone or by mail.