If you are in the habit of checking your credit score often or you have signed up for credit score warnings, then you know how your credit score changes over time. While you are excited about an increase in your credit score, you are just as alarmed about a decrease in your credit score.
The credit score system for the calculation is very complex and it can be difficult to pinpoint the exact reason for a credit score decline. Your credit score is based on information in your credit report. Therefore, if your credit score drops unexpectedly, it is usually due to a change in the information in your credit report. And, it’s not a big change for your credit score to fall. Here are some possible reasons why your credit score may fall.
Your payment is more than 30 days Late
Payment history always has the most significant impact on your credit score. Credit card and loan payments that are more than 30 days late are reported to the credit bureaus and are reflected in your credit score. Once the late payment hits your credit report, your credit score will most likely decrease.
You made an expensive purchase
Another important factor in your credit score is how much of your available credit is used – your credit usage ratio. It comes as a surprise to many people, but if you make a major purchase a month on your credit card, you could see a credit score decline even if you pay the balance in full on your due date.
This happens because credit card issuers usually report the credit card balance on the last day of the cycle. The balance on your credit card is often the balance that appears on your credit report.
The good news is that it is easy to correct the impact of high. Just pay the balance quickly, avoid making other credit card purchases, and wait. This will help you recover the lost credit score points.
Your unpaid bill has been transferred to collection
If you want to protect your credit score, it is important for you to pay all your bills, not just your credit cards and loans. If you fall behind on the payments on your non-credit accounts (such as your monthly phone bill), it could be sent to a collection agency and included on your credit report. Once a collection appears on your credit report, it will almost certainly cause a drop in your credit score.
Your Last Collection Dropped Off Your Credit Report
When calculating credit scores, FICO places people in different buckets, known as scorecards. Your credit profile is compared to other people in your score card to come with your credit score. While you may be on top of a scorecard with the collection on your credit report, you may fall to the bottom of another scorecard if any negative information falls on your credit report.
This kind of credit score drop is out of your control. Fortunately for you, as long as you keep paying your bills on time and keep your debt low, your credit score will improve.
You have a new application for Credit
Every time you enter a new credit application, an investigation is added to your credit report. Because questions represent 10 percent of your credit score, applying for new credit can affect your credit score.
Questions only affect your credit score for a year, so if that’s the only question you have, you should increase your credit score steadily and recover in 12 months.
One of your credit limits lowered
A lower credit limit has the same effect as charging an expensive product. If you have a balance on a credit card with a low credit limit, your credit usage goes up, and your credit score goes down.
You closed a Credit Card, or One was canceled
Closing a credit card can hurt your credit score, especially if the card has a balance. Credit card issuers can also cancel your credit card, which will affect your credit not necessarily because it was the creditor who closed the account, but because the account was completely closed.
Your Bankruptcy Fell off your credit report
When bankruptcy falls your credit report after seven years (ten years before Chapter 7 bankruptcy), you will probably move to a new credit scorecard. You would see a drop in your credit score because now your credit performance is compared to other people who have not filed for bankruptcy.