Seeing that your credit score has suddenly dropped can be an unpleasant surprise and quite stressful. In such cases, it’s crucial to determine what caused it and take the right steps to boost it back up. If you are not sure how to do that, read on: This article was written to help you identify the cause of your credit score drop and advise you on the steps you can take to repair the damage.
First of all, “Why did my credit score drop?” is a very common question, which means that many people find themselves in the exact same situation as yourself every day. A credit score drop can be attributed to numerous reasons. Here are some of the most frequent ones:
According to FICO®, the company whose FICO® Score is one of the most widely used credit scoring models, payment history is the number one factor that can affect your credit score. Any late or missed payment can have a massive impact on your overall credit score. If you are eager to know the fastest way to raise your credit score, we would advise you to start off by paying all your bills on time.
If you are just a few days late on a payment, you don’t have to worry about your credit report, but if it’s been more than 30 days, credit issuers will report that to a credit bureau, which will probably make your score drop. If you find yourself 60 or even 90 days past due, your debt can go into the collection agency’s database and stay in your credit file for seven years.
If you keep on asking yourself what makes your credit score go down and you feel like you can’t manage your payments on your own, perhaps it’s time you start looking for a credit monitoring service.
A friend of yours has a low credit score, so you’ve decided to help him out by cosigning his loan or a credit card application. If everything goes smoothly, this will not affect your credit score. However, if the person you helped out keeps on being late with their payments, that can influence your credit.
If you find yourself in a situation like this, we would advise you to first talk to your friend and let them know that what they do affects your credit score and then try to sort it out together.
This is probably the last thing that would cross your mind, but it does happen from time to time. Therefore, you should be careful, and you should make sure to check your credit reports now and then. Nevertheless, if this happens to you, don’t panic: There are steps you can take to recover yourself from identity theft. In case you have seen your credit score drop every month, you might want to investigate that further. If you come across any illegal activity, place a fraud alert on your credit file and file a report with the Federal Trade Commission, the government body dealing with identity thefts.
Since it’s better to be safe than sorry, consider checking into some of the identity theft protection services, or you can get yourself a secured credit card designed for credit-building.
You might think that closing a card you no longer use is always a good decision, but that’s not how things work with credit scores. Believe it or not, your credit score can drop after paying off a credit card. Once you close a credit card account, that credit limit gets removed from your utilization ratio—the portion of your credit limits you are using at the moment—potentially lowering your overall score.
Closing one of your older cards can also affect you, as the age of your credit is one of the main parameters in credit score calculation. So before you decide to cancel a particular card, make sure that you’ll have some benefit from it, and it won’t hurt your credit.
Not everyone knows that their credit score can drop after getting a second credit card. Applying for a new card usually means that you are doing well, and it’s a great step if you wish to build a credit score. Even so, when you apply for a new credit card, the card issuer pulls your credit report to check your background and your credit history.
This check is sometimes called a “hard pull” or a “hard inquiry”, and it can lower your score by a few points. The hard inquiries will remain on your report for two years, but most lenders only check the past twelve months when calculating your credit score.
You don’t have to start biting your nails if your credit score drops by a few points. The important thing is whether it remains a good credit score after the drop.
The credit score is one of the deciding factors lenders take into consideration when you apply for a loan. They use the credit scores to determine if you are reliable enough to be granted a loan. Furthermore, it helps them calculate the loan amounts and interest rates. So the total amount you’ll end up paying for your loan will be affected by your complete credit history.
In general, the credit score range goes from 300 to 850. The average credit score can vary, but it’s usually between 650 and 750. A score above 670 is considered a good credit score, while any score of 720 or more will put you in an excellent position.
Here’s a breakdown of elements influencing a FICO score:
Financial institutions consider a score below 549 points a bad credit score. In practice, people with scores like this will get rejected every time they apply for a loan.
Anything from 550 to 619 will get you to the poor credit score list. This might get you qualified for a credit; however, since you represent a high credit risk, the lender is likely to give you very unfavorable terms. If you still decide to go with this option, be sure to check out the credit cards for a low credit score.
If you recognize yourself in one of these two groups or you keep on wondering “Why did my credit score drop?”, here are some steps that can help you improve your current position:
The tried and true way of earning extra points. We’ve already mentioned that credit history is the most important factor lenders consider when deciding whether or not to give you a credit. As the late payments will leave a mark on your credit report for seven long years, try to manage your payments in a timely manner.
If you have the possibility to make a few smaller deposits throughout the month, you can slightly improve your credit situation. The goal is to lower your credit utilization ratio so that your credit score can go up.
If you raise your credit limit, your utilization ratio will go down, and that can help you boost your credit. If you have an upward-trending score, you might consider this as a quick way to rank your credit better. On the other hand, if you tend to overspend, increasing your credit limit might not be such a good idea, as you shouldn’t feel entitled to this newly available credit.
“Why did my credit score drop for no reason?” If you have already checked all of the possible options and you still don’t see what has caused your credit score to drop, there can be an actual error in your report that needs to be fixed. The good news is that you can access some totally free credit reports by one of the three major credit bureaus: Experian, Equifax and TransUnion.
If you do notice a specific mistake, you can dispute it and remove it from the report. Once you submit your request to the credit bureau, you can expect a response within 30 days.
Sometimes your credit score can change even though you didn’t take any particular action, or at least you weren’t aware of it at the moment.
If you recently had an impulsive shopping adventure, and you’ve charged more on your card than you usually do, this has probably increased your utilization ratio, which in turn affected your credit score. If a lender pulls up your credit report to make a hard inquiry, your score will be left with a few points less. Closing an account can also have a negative impact no matter who did it – you or the card company itself.
Your credit score can drop after getting a credit card, missing a payment, paying off a loan, buying a car, but it rarely happens randomly. We would advise you to monitor your credit score regularly and learn a bit more about the actions that can hurt it, to avoid any unexpected drops.
This specific number usually indicates that there were recently some balance changes on your account. Pay close attention to your online account. If you can’t keep track of all of the transactions and possible negative factors, you can review and analyze your account with a professional agent.
Once you pay off debt and close the account, your credit utilization increases, causing a drop in your credit score. Also, if it’s one of your older accounts, closing it might reduce the age of your credit in general. So think twice before doing that if you wish to maintain a good credit score.