Why Did My Credit Score Drop: 7 Reasons
Credit scores fluctuate, a lot. What may seem like minor changes in your credit report can cause your score to jump up or down by several points overnight; many times, the score change is probably unexpected and will leave you wondering as to what spurred it.
The fact is, credit scores can be affected by a large variety of things due to the scoring system being so complex. There are, however, some common reasons that you may experience a change and being familiar with them can help you anticipate possible change in the future. Below, we’ll take a look at 7 reasons your score dropped.
1. The Making of a Large Purchase
When you make a large purchase utilizing your available credit, it lowers the amount of open credit you have and can then lower your score accordingly. Your score can even lower if you pay off the purchase by the end of the month because creditors will report in accordance with your billing cycle. If you’re experiencing a lowering of your score for this reason, it will usually increase again within 1-2 months after the balance has been paid off.
2. You Made a Late Payment by 30 Days or More
Your account is considered delinquent as soon as you miss a payment, however creditors will not usually report it to the credit bureaus as late until you hit the 30 day mark. If you’ve experienced a credit score drop for this reason, be sure to bring your account current ASAP to prevent further negative reporting. You may even be able to get your creditor to rescind the negative reporting if you have a good relationship with them and a prior good payment history.
3. You Applied for a New Credit Line
When you apply for new credit, the lender will make an inquiry into your credit history and scores; this action will be added to your report and can affect your score. Multiple inquiries can drop your score even further, depending on how many and during what time frame they were made in. Sometimes, multiple inquiries made during a short period of time, say for a home loan, won’t affect your score as greatly. Credit score inquiries typically only stay on your report for one year before they fall off.
4. You Have an Account that Was Placed in Collections
When you have a delinquent account that’s been sent to collections it can cause a dramatic drop to your credit score. You can help the situation by settling your account and requesting they make a new report to your credit file. Otherwise, negative reporting due to delinquent accounts in collections will fall off your report after seven years from the date of the pay lapse has passed.
5. You Have a Closed Account
When you have a credit account closed or canceled, no matter the reason, this can heavily impact your credit score. This is because an account closure is also a loss of credit line available to you, thus potentially increasing your credit ratio. In order to increase your score again you’ll need to pay down any other accounts you have, or possibly look into opening a new account - both actions will help increase your available credit line and can raise your score.
6. Your Bankruptcy is No Longer Being Reported
If you have a bankruptcy in your history that has just fallen off your report, you may experience a drop in your credit score. It is thought typically that this action would increase a score, however, it can do the opposite because it places your credit back into normal scoring. Don’t worry, though, as you make healthy credit choices over time your score will begin to increase again.
7. A Credit Card Lowered Your Limit
When a credit card company lowers your limit of credit, it will most certainly drop your score because it will increase your credit utilization ratio. Opening a new line of credit or paying off other loans will help to increase your score again.