Credit score drop? The 7 likely causes

If you regularly monitor your credit and see a slight drop in your credit score, in most cases, this is completely normal. Nonetheless, if there is a significant drop, finding out the reasons why your credit score drops is positive action to do, to know what can you do about it.

Various reasons can explain how your credit score may have dropped, such as a recent missed or late payment, recent credit inquiries, or even a shift in your available credit or usage.

This article will be focusing on the common reasons why your credit score might have dropped.

What are good and poor credit scores?

It’s in everyone’s best interest to keep their credit score in good standing, as doing so can result in significant financial and mental savings over time. Having a higher credit score will increase your access to credit and lower your interest rates.

On the other hand, if your credit score is low, you may be denied access to certain loan options or offered these options at significantly higher interest rates due to the increased risk your profile poses to the lender.

Credit scores are categorized into many ranges. Numerous scoring models employ the range of 300 to 850. In this model, scores above 800 are exceptional, while 700 is considered good. Under 669 is fair or poor.

The common reasons that cause your credit score to drop

  1. Your credit report contains an error.

The information in your credit report forms the basis of your credit score. Errors in your credit report, such as an account being reported as late when it isn’t, can lower your score.

  1. You applied for numerous credit lines.

Getting qualified for a credit card or loan, especially for the first time, is a pleasant experience. So, it might seem like a good idea to use your good credit to get more credit.

But “hard inquiries” — when a lender or card issuer looks at your credit to decide whether to approve you — might cause a slight decrease in your credit score. Multiples during a short period of time, say six months, can have a significant impact.

  1. Unpaid or overdue bills

Payment history is a major factor in determining creditworthiness. According to FICO, it is the most influential component of their credit scoring method, accounting for 35% of the total. Having an account reported as late will drop your score.

  1. Closing a Credit card

There are numerous reasons why closing a credit card can result in a decline in credit ratings. When you cancel a credit card, your available credit decreases. Your credit usage ratio will increase if you do not lower your spending in kind.

The second reason why closing a credit card could negatively impact your credit rating is if it shortens your average credit history. The older an account, the greater the potential impact on your average account age upon closure. Consider whether closing your oldest credit accounts is truly necessary before doing so.

  1. You’ve Repaid a Loan

Paying off revolving debt, like credit card debt, can boost your score, but paying off installment debt, such as a mortgage or a student loan, can have the opposite effect.

When you pay off a large debt, such as a vehicle loan, it reduces the total amount of available credit you have and can have a negative effect on your credit score.

  1. You have been a victim of identity theft.

A significant and unexplained decline in your credit score may be the first indication of identity theft. When reviewing your credit reports, search for red flags such as addresses you’ve never lived at or unusual accounts. You can clean up the mess, but the sooner you notice it, the easier the task will be.

  1. Derogatory Remarks on Your Credit Reports

Your credit score is based on the information in your credit reports, so bad information can lower your score. For instance, if you have a bankruptcy on your credit report, it can hurt your score for a long time.

Other examples of derogatory remarks on your credit reports that can hurt your credit score are public records, collection accounts, and foreclosures.

The Bottom Line

It’s unpleasant when your credit score drops, but it doesn’t have to stay that way forever. It is possible to improve your credit score and stop it from dropping again. Always keep in mind that credit scores are dynamic and that you may raise your own through changes in behavior—a reassuring fact that can have a positive impact on other areas of your financial life as well.

Elizabeth Roberts

Elizabeth Roberts

Liz Roberts and her team are continuously providing information to people who are ready to repair their credit and improve their credit score. Also NewHorizon.org team strives to empower the homebased and small business owners by bringing information that can help them to manage and grow their businesses. Let our 23+ years of business finance experience help you to get the financing you need! CONTACT US if need financing for your business.

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NewHorizon.org is an independent, advertising supported website. The owner of the site may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website. NewHorizon.org has not reviewed all available credit card offers in the marketplace.

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NHBS Inc © 2022

NewHorizon.org is an independent, advertising supported website. The owner of the site may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website. NewHorizon.org has not reviewed all available credit card offers in the marketplace.

Privacy Policy Terms of Use

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