Why has my credit score dropped? – Councilor Forbes

Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but this does not affect the opinions or ratings of our editors.

When you check your credit score and notice a small drop, there is usually nothing to worry about. It is common for credit scores to fluctuate in small increments. However, if you see a significant drop of at least 15-20 points, you should find out the cause. This can help you determine if it fell based on your actions, a credit report error, or possibly identity theft.

To help you answer this question, we’ve compiled a list of potential reasons why you may have seen your score drop. You will also learn some tips on how to solve each problem in order to improve your credit score.

Increase your FICO® score instantly with Experian Boost ™

Experian can help you increase your FICO® score based on paying bills like your phone, utilities, and popular streaming services. Results may vary. See the site for more details.

6 reasons your credit rating has gone down

If you want to understand why your credit rating has dropped, here are six reasons to consider.

1. Derogatory Notes on Your Credit Reports

Since your credit score is calculated based on the information in your credit reports, negative information can lower your score. For example, if you have bankruptcy listed on your reports, it can negatively affect your score for a long time. A Chapter 7 bankruptcy stays on your credit report for up to 10 years while a Chapter 13 bankruptcy stays on your report for up to seven years.

Some other examples of derogatory remarks that can lower your credit score include collection accounts and foreclosures. An original creditor usually sends your account for collection after failing to collect a debt from you. A foreclosure happens when you default on your mortgage. These negative remarks stay on your credit reports for up to seven years.

While a disparaging remark can stay on your credit report for up to ten years, its impact wanes over time. Plus, adopting good credit habits can help you rebuild your credit faster.

2. Inaccurate information on your credit reports

Sometimes creditors make credit report errors. For this reason, it’s a good idea to review each of your reports from the three major credit bureaus — Equifax, Experian, and TransUnion. You can view your three reports for free each week until April 20, 2022 by visiting AnnualCreditReport.com.

When reviewing your reports, verify that your accounts and personal information are correct. If you spot an error, dispute it with each credit bureau that lists it online, by mail, or by phone. Also, keep in mind that if you see an account that you have never opened, it could be a sign that you are a victim of identity theft.

If you believe someone has stolen your identity, file a report with the Federal Trade Commission (FTC) through IdentityTheft.gov and freeze your credit with all three credit bureaus as soon as possible.

3. You missed a payment

Your payment history is the most important credit score factor – it accounts for 35% of your FICO score. If any of your bills are 30 days past due, a creditor can report it to one or more of the three major credit bureaus. As a result, your credit score can suffer significant damage and the late payment can stay on your reports for up to seven years.

To avoid further damaging your score, you should pay the overdue bill as soon as possible. Also, consider contacting your creditor to see if you can identify a repayment plan and ask them to stop reporting your late payment to the credit bureau.

If you want to reduce the chances of your score dropping due to late payments, sign up for auto-pay or use a spreadsheet to track your due dates.

4. Your credit utilization rate has increased

If you’ve recently made a large purchase on credit, it can cause your credit score to drop. This is because it can increase your credit utilization rate, which is 30% of your FICO score. In general, the lower the use of your credit ratio, the better your credit rating.

Your credit utilization rate measures how much credit you use versus how much you have. For example, if you have a balance of $ 5,000 and your total credit limit is $ 20,000, your ratio is 25% ($ 5,000 / $ 20,000).

While it’s often recommended that you keep your credit utilization rate at 30% or less, keeping it near 0% could help improve your score or build your credit.

5. One of your credit limits decreased

When a lender or credit card issuer lowers your credit limit, it can also increase your credit utilization rate and lower your credit score. To illustrate how this works, let’s say your current credit balance is $ 3,000 and your total credit limit is $ 10,000. Based on these numbers, your credit utilization rate would be 30% ($ 3,000 / $ 10,000).

However, if one of your creditors decided to lower one of your credit limits by $ 2,000 and your balance remained at $ 3,000, that would increase your credit utilization rate to 37.5% (3 $ 000 / $ 8,000).

In this situation, you could ask the lender to increase your credit limit to reduce your usage rate. If that doesn’t work, an alternative solution would be to pay off your current balance.

6. You have requested more than one loan product

When you apply for credit, a lender usually performs a thorough credit check to examine your creditworthiness. According to FICO, each credit check can temporarily lower your credit score by up to five points for a year. So, if you have applied for multiple credit products over a long period of time, it can cause a pitfall for your credit score.

However, if you are looking for a rate for a mortgage, student loan, or car loan within 14-45 days, FICO only counts it as a serious request.

To reduce the impact on your credit score, apply for credit only when necessary.

Increase your FICO® score instantly with Experian Boost ™

Experian can help you increase your FICO® score based on paying bills like your phone, utilities, and popular streaming services. Results may vary. See the site for more details.

Frequently Asked Questions (FAQ)

Can my credit score go down for no reason?

Since your credit score is based on information found in your credit reports, it only changes when new information is reported. For example, if you have used more of your available credit or if your credit limit has gone down, that can cause your score to drop. If you can’t think of anything you took to lower your score, check your credit reports for errors and signs of identity theft.

Why has my credit score dropped 30 points for no reason?

If you’ve made a late payment or other derogatory information is on one of your credit reports, it could drop your score by at least 30 points. Also, using more of your available credit or closing one of your older credit card accounts could cause your score to drop significantly.

Why is my credit score low after getting a credit card?

When you apply for a credit card, the issuer performs a credit check to determine if you qualify. This can cause your credit score to temporarily drop by up to five points. If you make a large purchase after receiving your new card, it may increase your credit utilization rate. As a result, your score could drop even more.

Previous Time is up: Congress must stop credit union purchases of taxpayer banks
Next Bad credit makes auto insurance expensive, but states seek solutions - NBC Boston