If you’re just starting out building credit, it’s normal to have questions about your credit score and how it’s calculated. One of the most common questions we hear at Fizz is “why is my credit score so low?” While a low credit score can certainly be cause for concern, it’s important to remember that if you’re just starting out, a low credit score shouldn’t be a major concern.
Now, it’s important to remember that missing payments and going into credit card debt is typically the reason why someone’s credit score might be low. But if you’re using your Fizz card or credit card responsibly, there’s still a chance that your score will be lower than you want it to be. Let’s take a closer look into the reasons why your credit score might be low – especially when you’re just starting out.
Your length of credit history
This is a big one. When you’re just starting out, you likely haven’t 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 shouldn’t worry: The only thing you can do is keep your accounts open and paid off. If you’re responsible with your line(s) of credit, over time, you’ll see improvements to your score.
Your credit utilization
Credit utilization is a measure of how much credit you use every month. While Fizz’s 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 shouldn’t 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, it’s important to remember that high credit utilization happens, and it isn’t 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 – 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 shouldn’t worry: This isn’t 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 aren’t 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 shouldn’t 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 aren’t likely to have long lasting negative effects on your credit.
The bottom line
Unless you’re missing payments, a low credit score isn’t something that should seriously concern you. If you understand the factors influencing your score, you’ll quickly realize that fluctuations are normal and that you shouldn’t worry too much about having a low credit score when you’re just starting out. In the same vein, you shouldn’t worry about your score fluctuating when you’ve been responsibly building credit for a while. Remember, building good credit is a journey. Every positive financial decision contributes to a brighter financial future.
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.