Do you want to know why your credit score recently dropped? Perhaps you are trying to get a new credit card or loan and it has come to your attention that your credit rating is not as high as you need to qualify. You probably are surprised and saddened to learn your score is not at the level you need. We’ll help you learn why so you can take action for the better.
In order to get what you want in life, you want the best credit score you can have. It is your FICO credit score, a 3 digit number which is calculated based on your financial behavior, that demonstrates your financial strength. It provides lenders and service providers your credit rating status and will allow you to get the things you need and want in life. Pretty important! Find out why your credit score dropped and work to get your credit healthy for the future.
Whether it’s a credit card to buy items, a loan for a car or a home, or financing for a student loan, your credit score is crucial to making these things possible. While your credit rating fluctuates, you’ll want to understand what influences this score. Try to get your score as high within the 300-850 range as possible by avoiding these top reasons why your credit dropped.
Missing a credit card or loan payment.
Yes, it can only take missing one payment to hurt your credit score and can remain on your report for up to 7 years. If you are late making a payment more than 30 days, your credit score will take a hit. Forgetting a payment can trigger lenders to contact the credit bureaus and lower your score. Remember that a consistent payment history makes up for 35% of your credit score so it’s wise to not make a habit of missing payments or being late.
Not having the right credit cards and loans.
Next, not having a mix of credit types in your history can hurt your rating. Your credit score is calculated using all loans and credit cards. It is beneficial to have a mix of credit types to optimize your credit score so that creditor and lenders know you can manage different types of loans. There are two major types of loans — revolving loans, like a credit card, and installment loans, like a mortgage. Make sure you have both revolving and installment type loans. If you have only one type of loan, your score could be weighed down.
Carrying high balances or maxing out your balance.
Maxing out credit limits can decrease your credit rating. If you find your are approaching your card’s maximum credit limit, take action now. The percentage of available credit you use makes up for 30% of your credit score. It’s best to keep balances as low as you can so that your credit utilization ratio 30% or lower.
Closing your credit cards.
While you may be tempted to close a credit card you paid off, hold off in doing that to prevent your score from dropping. By lowering the total available credit amount, your credit utilization ratio may be harmed. Also, closing an account may shorten the age of your credit history which also can negatively impact your credit.
Consolidating to one credit card.
Consolidation to one credit card may seem like you are simplifying things and making a good financial decision. But remember that doing so may not help your credit. Having one higher balance may cause your credit utilization to go up, which will lower your score.
Applying for too many cards or loans.
Each time you request credit, either through a mortgage loan, or a credit card, or even apply for a new cell phone or new insurance policy, a hard inquiry may be made. Additionally, when you refinancing a home, car or student loan, a hard inquiry may be run against your credit report. Each hard inquiry will drop your credit score, especially if done within a short time span, approved or not.
Not paying all your bills on time.
Things like your rent,utilities, medical bills, child support payments, IRS tax payments, and even library fees and parking tickets can harm your credit. Missing a payment on things other than credit cards can adversely affect your credit score. If you end up becoming delinquent on any of your payments, this behavior may be reported to the credit bureaus. If you are unable to pay your bills, make sure to contact them and set up a payment plan to avoid hurting your credit.
Cosigning other loans.
Next, being authorized on someone else’s card or loan that ends up in bad standing can jeopardize your credit. Consider this if you opt to co-sign with your good credit to help out family or friends. You take on responsibility for their debt and risk your credit score.
Collections, Charge-offs, Liens, Bankruptcy, & Foreclosure
When you do not or cannot pay your bills, many things can happen that will affect your credit rating. If your debts are in collections, charged-off, you have liens on property or unpaid taxes, you’ve foreclosed on a loan, or declared bankruptcy, your credit report will have derogatory marks and your score is surely affected. Try to anticipate problems in paying. If you find yourself unemployed, contact lenders immediately to work with them on payment plans.
Never checking your credit report.
Last but not least, inaccuracies could end up harming your credit score. Creditors and the credit bureaus (Experian, TransUnion, and Equifax) do make errors. Also, we live in a time where identify fraud happens more that you think. If there are errors or fraudulent activity on your report, you need to know about them. It is easy and free to get a copy of your credit report each year to monitor for potential errors.
Behavior that can drop your credit rating can be subtle and you may not be aware. Sometimes, it’s the small things you do that have a significant impact on your score. Your credit score is your responsibility. Make sure it is accurate and the best it can be. By avoiding the things that can hurt your credit and financial reputation we’ve listed, you are well on your way to building a solid foundation and a strong credit score.