When your credit score takes an unexpected turn downward, it can cause worry and frustration. Credit scores do fluctuate a bit over time, and a couple of points up or down isn’t a big deal but a downward trend or a large drop is. Here is a list of things that can be behind your credit score drop, and tips for fixing them:
You missed a payment
It occurs. Perhaps you have online statements and you deleted the email notice, thinking it was one more ad. It was a new credit card as well as the first bill got tucked inside a flyer in your mail. You were not accustomed to paying that bill so you did not notice its absence.
The fix: Pay it. Once you are sure the money has reached the creditor, call and ask if you can be forgiven this once. There is no guarantee it will work, but it cannot hurt to ask. If the creditor agrees not for reporting your delinquent payment to the credit bureaus, your credit reports will not carry a negative mark for 7 years.
Your credit utilization increased
Credit use refers to how much of your available credit you use at any given time. You can calculate your credit use percentage by dividing your total credit account balances by your total credit limits as well as multiplying by 100. Although credit factors vary depending on the scoring model being used, credit use is considered a high-impact factor. Why is credit use so important? It is since it gives creditors an idea about how responsibly you can use credit. Most experts recommend keeping your overall credit use rate at or below 30%. Anything higher can suggest irresponsible credit behavior and can contribute to low credit scores.
You paid off the student or car loan
While it isn’t the most essential part of your credit scores, having different kinds of credit and a proper number of open accounts can show lenders that you have sufficient experience for paying off debt correctly. If you have paid off the only loan you have, your credit mix can look a small less diverse to lenders. Likewise, if your total number of accounts suddenly skyrockets and nosedives, that can indicate that you are financially strapped and need a credit card and cannot afford your existing credit accounts. Before you open or close accounts, you should check the credit reports, where you can see the distribution of the open and closed accounts.
One of Your Credit Limits Was Lowered
Same to maxing out your credit cards, having your credit limit lowered can raise your credit use ratio and negatively affect your credit scores. Imagine, your total credit limit was $10,000 and then you had a balance of $3,000. Your use ratio will be 30 percent. If your limit was lowered to $6,000, but your balance remained similar, your utilization ratio will change to 50 percent. It can cause the credit score to drop. Irrespective of whether the credit limits are shrinking or balances are increasing, monitoring your credit use ratio will help you to understand the fluctuating credit score.
You Closed a Credit Card
If you are thinking about closing a credit card you do not use, you can want to think twice. Closing a credit card account will not increase your utilization ratio, it can decrease the length of your credit history both of which can impact your FICO® Score. When you close a credit card, that credit limit is removed from your overall use ratio, which as mentioned, has the potential to low your scores.
Closing a credit card account, you have had for some time can shorten your average credit age, as well as that, will factor into your credit score. The length of your credit history counts for 15 percent of your FICO Score, so a long history is great for your scores. Keep in mind, however, that if your account is closed in better standing. It can remain on your credit report for up to ten years, reducing the effect on your credit scores. Until the credit card has a higher annual fee that you can’t afford or it tempts you to spend more than you should, it does not hurt to keep the account open for maintaining your credit limit and length of credit history.
There Is Wrong Info on Your Credit Report
Regularly checking your credit reports is one of the perfect ways to make sure no inaccurate info shows up in your file. Even it is rare that mistakes happen, and it is quite possible that incorrect information in your credit report can cause your scores to drop. If something in your report is inaccurate, it can be a result of a lender accidentally reporting the wrong info. It can be a sign; you have fallen victim to identity fraud. If you see something you believe is inaccurate, you should dispute the info with all 3 credit bureaus as soon as possible.
You Made an Expensive Purchase
Another vital factor in your credit score is the amount of available credit you are using, or your credit use ratio. It comes as a surprise to several people but, if you make a huge purchase on your credit card 1 month, you can see a credit score drop if you paying the balance on due date even. This occurs because credit card issuers usually report the credit card balance as of the last day of the billing cycle. The balance on your credit card statement is frequently the balance that appears on your credit report.
Your Bankruptcy Fell off Your Credit Report
When bankruptcy falls off your credit report after 7 years. You will move to a new credit scorecard, the same as what happens when a collection drops off your credit score. You will see a drop in the credit score since your credit performance is now being compared to people who have not filed for bankruptcy.
Missed payments are not the only derogatory marks, can hurt your credit score. When foreclosures, bankruptcies, and accounts in collections are reported, this negative info can bring down your credit score. With few exceptions, most derogatory marks stay on your credit report for up to seven years. Bankruptcy records stay on your report for up to ten years. Negative info tends to have a less severe impact on your credit score as time goes on.
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