Do you keep track of your credit score? If so, at some point, you may notice that your credit score has suddenly gone down. If this happens, don’t panic. There can be a wide range of possible causes and solutions for a dip in your credit score. Some causes of a credit score decrease are small and may require little to no work on your end. Meanwhile, other possible causes of a credit score decrease can be significant and could damage your creditworthiness. It is important to realize that it’s common for credit scores to fluctuate from one month to the next. However, if you ever notice a large drop in your credit score, action may be required. Here are 5 possible causes of a credit score decrease with solutions to get your score back up.
1.) Late or Missed Payments
Anytime you miss or are 30-days or more late on a payment, you run the risk of a credit score decrease. Depending on the scoring model used, your payment history accounts for roughly 35% to 40% of your overall credit score. Since payment history is the largest category considered when calculating your credit score, even one late payment could cause a drastic score drop.
Solution: Always pay your bills on or before the due date. For best credit score results, pay your monthly statement balance in full and on time.
2.) A Hard Credit Inquiry
When you apply for a new line of credit, such as a mortgage or auto loan, lenders will likely ask to see your credit report. Giving your lender access to this information allows them to evaluate whether or not you are a good candidate to approve for a purchase or loan money to. When a lender pulls your credit, it is considered a hard credit inquiry. Unlike soft inquiries, such as checking your own credit using ScoreShuttle, hard credit inquiries could have a negative impact on your score. This may be especially true if you have several hard credit inquires over a short period of time.
Solution: Limit the number of hard credit inquiries you agree to. Additionally, try to space out the number of credit card and loan applications you submit when possible.
3.) An Increase in Your Credit Utilization Ratio
For those of you wondering, “Why did my credit score go down if nothing changed?” This cause could be the culprit. Your credit utilization ratio is the amount of credit you use compared to the total amount of available credit you have. For example, let’s say you have a credit card limit of $5,000 and you charge $4,500 of your allotted spending amount. If you do not either pay this debt off in full or significantly pay down the balance on the due date, your utilization ratio may go up and could cause your score to go down.
Solution: Strive to keep your utilization ratio at or under 30%. Maintaining a low utilization ratio can help you prevent an unexpected credit decline. A low utilization rate, paired with a high credit limit, may even help you increase your credit score.
4.) Closing an Older Account
Your credit history makes up anywhere from 15% to 21% of your score. With this in mind, if you close an older account, your credit score could take a hit. Here’s why. The longer you’ve been responsibly using credit can demonstrate a solid history of borrowing and paying back purchases. Therefore, if you close an older account, it may take away the number of years associated with the account and may cause a score decrease. Furthermore, if you close an account with a good credit limit, it may also take away the amount of available credit in your name – which is another decline risk.
Solution: Before you close an older account, weigh the pros and cons. If you can afford to maintain the line of credit, it may be wise to keep it open. For higher score results, consider charging at least one small purchase on the account every month. If you choose this route, be sure to pay your statement balance in full when due.
5.) Inaccurate Information on Your Credit Report
It is essential to regularly check your credit report to ensure that no outdated information or errors pop up overnight. If you’ve checked off all of the above and still experience a credit score decrease, a new report error could be to blame. The fastest, easiest way to potentially remove a credit report inaccuracy, is to dispute it.
Solution: Check your credit report on a regular basis. To view your current report, click here. If you spot an error, the ScoreShuttle software gives you the option to dispute it in a single click. Anytime a negative error is successfully removed from your report, you could see an uptick in your credit scores. For more online tools you can use to monitor your financial activity and increase your credit scores on your own, click below to access the ScoreShuttle software today!
Disclaimer: The tips above cover some of the most common causes behind credit score fluctuation. The exact reason why your credit scores may go up or down will vary depending on your unique credit situation and personal financial activity.