Why Do I Have Bad Credit if I’ve Made On-Time Payments?

Quick Answer

While on-time payments are a big factor in your overall credit score, there are a lot of other factors that could contribute to you having a poor credit score. Identifying what’s causing your low score and working to improve it gives you the best chances of raising your credit scores.

Why Do I Have Bad Credit if I’ve Made On-Time Payments? article image.
Dear Experian,

Why is my credit bad? I pay everything on time.

- WOD

Dear WOD,

There is more to having good credit than just paying all of your bills on time, although that is extremely important.

What Factors Impact Your Credit Score?

Your payment history—whether you have paid your bills on time or late—has the greatest impact on credit scores. However, it typically accounts for less than half of your score, usually between 30% and 40% of the total.

Several other factors also are critical to being a good credit risk and having good credit scores. Your credit utilization rate, also sometimes referred to as your debt-to-limit ratio, can also significantly affect credit scores (more on this below).

The length of your credit history is another factor. A short credit history gives less to base a judgment on about how you manage your credit, and can cause your credit score to be lower.

A combination of these and other issues can add up to high credit risk and poor credit scores even when all of your payments have been on time.

What Is a Credit Utilization Rate?

Your credit utilization rate is a comparison of your total balances to your total credit limits, expressed as a percentage. You can calculate that number by adding up all of your credit card balances and all of your total credit limits. Then, divide the total balance by the total limit and multiply by 100 to get a percentage.

A high credit utilization rate indicates you are overusing your credit and may be at risk of default, even if you haven't yet missed a payment. While you may be making the minimum payment each month, when you have very high balances as compared to your limits, just one unplanned event could cause you to default on your debts.

Credit scoring systems also look at individual accounts. A very high balance on even one credit card can indicate some risk, and can negatively impact credit scores, although less than your overall credit utilization rate. The question is, if one card is being charged to the limit, are the others soon to follow?

What if I Don't Have Enough Credit?

In some cases, being turned down for credit or services might not be the result of bad credit, but rather a lack of credit. A thin credit file typically refers to a credit history with fewer than five credit accounts. Most credit scoring models need at least one or two active credit accounts on a credit report to generate a credit score. They also typically require payment activity for three to six consecutive months.

Having a thin credit file can make it harder to qualify for credit and services when you need them. If you have a thin file, here are some steps you can take to make your credit history more robust:

  • Sign up for Experian Boost®ø. Experian Boost can help expand your Experian credit file by giving you credit for on-time utility, streaming service and even rent payments. The feature is completely free and can boost your credit scores quickly and easily by using your own positive payment history.
  • Apply for a secured credit card. Secured cards require you to put down a deposit, which typically acts as your credit line. Because the credit line is "secured," credit card issuers are more willing to provide these credit cards to those with little or adverse credit history. The issuer will usually report your payments to one or more of the credit reporting companies, helping you build credit.
  • Ask a close friend or family member to add you as an authorized user. As an authorized user on a credit card account, you can benefit from the primary cardholder's positive credit history. You can use the account to make purchases, but you are not responsible for making the payments. Not all lenders report their authorized-user accounts to the credit reporting companies, so check with the lender before requesting to be added to the account.

How Can I Find Out What Is Hurting My Score?

The best way to find out what is specifically affecting your credit scores is to get a free copy of your credit report and free credit score from Experian. Reviewing your credit history can help you understand what lenders are seeing when they look at your report and ensure that there are no surprises when you go to apply for credit. Ordering your free Experian credit score will provide you with a list of the specific risk factors that are currently impacting your score the most and enable you to focus on changes you can make to those factors that will help you begin to improve your credit scores.

The information you get from your credit report and score will empower you to create a plan to improve your creditworthiness over time so you can get the credit you want and at the best rates.

Thanks for asking.

Jennifer White, Consumer Education Specialist

How Good Is Your Credit Score?

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