Three Reasons Your Credit Might Be Bad and How to Fix It

It can happen before you know what hit you: one minute your credit is spotless, and the next, you’re getting turned down for that balance transfer you requested. You call to find out why, and it turns out your credit score has dropped into the dreaded “bad credit” zone.

There are a number of reasons this can happen—and rest assured, it happens to many people. So don’t feel ashamed that your credit score fell into the red zone. Just follow our advice to get it on its way back up.

Here are a few of the most common causes for limited credit/no credit/bad credit, and how to solve them:

1)     You got divorced, but your credit didn’t. Sometimes after a relationship ends, people’s credit reports are still married. If you’ve gotten divorced, but your partner’s name is still on your bank account or your credit card, their current financial behavior is very likely still affecting your credit score. So if your ex is maxing out credit cards or taking out loans via your joint account that could be the reason your credit score is falling. Call your bank, your credit card issuers, and any other financial institutions where you hold joint accounts, and get your ex-spouse’s name taken off your financial records.

2)     You lost your job and used your credit card as an emergency savings account. In the current economic climate, many people are still dealing with the effects of long-term unemployment. Or maybe you lost your job unexpectedly. Whatever the reason, using your credit card to cover the gaps in your budget can lead to a high debt-to-credit ratio. In other words, maxed out credit cards. This will sink your credit score if it goes on for very long. Also, opening more credit cards dings your credit report each time. So if you’re taking on more debt that could be why your credit is suffering. If you’re in debt over your head, the best course of action is to consult a nonprofit credit counseling firm. They can help you make a plan to pay down debt and get your credit back into “good” territory.

3)     You’re opening and closing too many accounts. Each time you apply for a new credit card, it results in a hard inquiry to your credit history. And every hard inquiry has the potential to lower your credit score. So if you’ve been applying for every new rewards card and balance transfer card you get an ad for, you could be sinking your credit score – even if you are approved for the accounts. Even worse, if you close one credit card account every time you open a new one, you’re cutting your credit history short. That also impacts your credit score. It’s much better to keep your accounts open, even if you aren’t using them often. This creates a long credit history, which is important for your score. So pick a few good cards and stick with them.

It takes time to see significant improvement in your credit score, but it will happen. Given time, responsible use of credit can mend any credit score.