Playing the FICO score game is something you can’t avoid unless you want to live in the woods or your own island. For the rest of us, there is this invisible tag with a number between 300 and 850 attached to our name the whole time. This grants us the opportunity to buy a house, a car or decrease the insurance rate. It’s a way of measuring how trustworthy we are. Unfortunately, the algorithm is not perfect, and even reliable people can get sub-par credit scores, usually below 600.  Here are the most common reasons this happens and a quick fix. If you wonder what is a low credit score, here is some advice on bad credit from AAACreditGuide.

Human Error

Although hard to believe, almost 20% of credit reports contain some type of error. Although some of these are benign, like a misspelled name or street, others are more serious like later reporting of payments. Sometimes it’s your fault since the forms are lengthy and handwriting can be misleading. Other times, the error belongs to the financial institution processing the application. Only in a few isolated cases, it was proved to be an identity theft. Large amounts charged in your name should be a clear warning signal. It’s a good idea to check the report from each of the three bureaus every year just to eliminate this unwanted possibility.

Not Enough Credit Utilization, or Diversity

Although paying your bills on time and staying current with your obligations is the most important thing to build a high credit score, this only counts for 35% of the total. You also need to have a good utilization rate (amounts used/amounts available). Simply put, you need more than one credit card to keep the numbers low. For example, if you have a limit of $1000 on one card and you spend $700 monthly, you have a 70% utilization which is considered dangerous. Just imagine you get two more cards, raise your limit to $3000 and split the spending between these cards: $250, $250 and $200. Each card will have between 20-25% utilization, and as an average, you have 23%, which means you are responsible.

Another way to show you are a great money manager is to get different types of credit. For example, a mix of a house mortgage, a car loan, and credit cards show you can joggle swiftly.

Getting Intimidated

Most people don’t know that collections stay on your credit report for seven years anyway, even if you pay them in full the next month they were reported. That means it makes no sense to pay them first, sometimes even by skipping a few current payments. Delinquency on a credit card payment which is older than 30 days only means an even lower score.

This happens very often due to debt collection agencies. These companies have scripts and processes that are both intimidating and annoying to the average person. Th simple solution is to pay your current debt first and cover those sent to collecting agencies at a comfortable pace for you.