If youâre just starting out building credit, itâs normal to have questions about your credit score and how itâs calculated. One of the most common questions we hear at Fizz is âwhy is my credit score so low?â While a low credit score can certainly be cause for concern, itâs important to remember that if youâre just starting out, a low credit score shouldnât be a major concern.
Now, itâs important to remember that missing payments and going into credit card debt is typically the reason why someoneâs credit score might be low. But if youâre using your Fizz card or credit card responsibly, thereâs still a chance that your score will be lower than you want it to be. Letâs take a closer look into the reasons why your credit score might be low â especially when youâre just starting out.
Your length of credit history
This is a big one. When youâre just starting out, you likely havenât had a Fizz card or a credit card for very long. Since the average age of your credit accounts is a factor in your credit score, those new to building credit might see lower scores than they hope for.
Why you shouldnât worry: The only thing you can do is keep your accounts open and paid off. If youâre responsible with your line(s) of credit, over time, youâll see improvements to your score.
Your credit utilization
Credit utilization is a measure of how much credit you use every month. While Fizzâs daily Autopay feature helps keep your credit utilization low by paying off your purchases on a daily basis, there still might be months where your credit utilization is higher than normal, which can lead to a decrease in your score.
Why you shouldnât worry: As noted above, Fizz helps keep your credit utilization low. But if you use a normal credit card, you can keep your utilization low by paying off your balance a day or two before your statement closes. Also, itâs important to remember that high credit utilization happens, and it isnât a derogatory mark on your credit. If your score drops due to high utilization one month, it can go right back up the next month if your credit utilization returns to a normal threshold â under 30%.
You opened a new credit account (or closed an existing one)
When you open a new credit card, take out a new loan, or close an old account, your credit score can drop for two reasons. First, for new accounts, hard inquiries can hurt your score slightly, but usually not by more than 10 points. Plus, they only stay on your report for 2 years. Second, opening new accounts will drop the average age of all your credit accounts, and closing accounts can do the same, depending on how long you had the account for.
Why you shouldnât worry: This isnât a reason to never open or close accounts. Fluctuations in your score are normal, and if a new credit card or loan is going to be a benefit to you, you should open it. Changes in your score from opening a new card, closing an old one, or taking out a new loan arenât derogatory and their effects will eventually go away.
Not all credit score changes are the same
As mentioned noted above, the time to worry is if your credit score is decreasing due to missed payments or other derogatory marks on your credit report that signal to lenders that you are irresponsible with money.
But most of the time, decreases in your credit score are natural fluctuations that you shouldnât be overly concerned about. Opening up a new credit card, being early on in your credit journey, or using more money than usual one month (while still paying it back, of course) may cause minor or even major fluctuations in your credit score, but none of them fall into the category of being irresponsible. Plus, any fluctuations as a result of these things arenât likely to have long lasting negative effects on your credit.
The bottom line
Unless youâre missing payments, a low credit score isnât something that should seriously concern you. If you understand the factors influencing your score, youâll quickly realize that fluctuations are normal and that you shouldnât worry too much about having a low credit score when youâre just starting out. In the same vein, you shouldnât worry about your score fluctuating when youâve been responsibly building credit for a while. Remember, building good credit is a journey. Every positive financial decision contributes to a brighter financial future.
*This communication is for informational purposes only and should not be considered financial advice.*
Sam Lipscomb
Author bio
Sam is a Kenyon College alum and is head of content at Fizz. He's been a go to personal finance resource among his peers since getting his first credit card during his sophomore year of college. He hails from Washington, DC, loves all things aviation, and currently lives in Los Angeles.
