If your credit score has decreased and you are wondering why that happened, you are in the right place. You should note that credit score is not a static number and varies from time to time. Credit score drops due to many reasons. Sometimes these reasons are as simple as closing a credit card. However, sometimes the credit score drop can be caused by errors on your credit history. We are going to discuss some significant reasons for a credit score drop in this article.
Five reasons for credit score drop:
If you have forgotten to pay a debt or your payment is late for 30 days, then you should expect a credit score drop. When payments are delayed for thirty days, the credit issuers report the late payment to credit bureaus. Credit bureaus save this negative information on your credit history, and that is where the problem begins.
The credit score systems consider your payment history in calculating your credit history. For example, 35 % of your FICO credit score accounts on your payment history. If you miss your payments for more than one month, the situation gets worse.
If you do not make your payments, the debt collectors, collect your missed payments in your history. This information can remain on your credit file for up to seven years. Therefore, be subtle about your debts.
2. Applying for a new credit line can drop your credit
If recently, you have applied for a new credit card, mortgage loan or any other credit debt, you can face a credit score decrease. When you ask for a new credit account, a loan or similar credit debts, the credit provider gets to check your credit history. Anytime, someone other than you checks your credit history, a hard inquiry is reported on your credit history.
Although it is reasonable to have some hard inquires in credit history when the number of these hard inquiries increase in a short time, it becomes an issue. It means that you are borrowing more money, while your balance is stable.
These hard inquiries can file as negative information on your credit report for two years. Therefore, if you are going to apply for a new credit line, be aware of the number of hard inquiries on your credit report.
3.Credit score drop & Buying something expensive
If recently you have paid for something fancy and expensive by your credit card, you are likely to face credit score decrease. When you purchase assets with your credit card, you should be subtle about your credit utilization ratio(CUR). Your CUR is the ratio of your credit usage to your credit limit. Specialists suggest maintaining a 30% credit utilization ratio for good credit and a good credit score.
4.Closing a credit card
If you are going to close a credit card, review your decision. Closing a credit card affect your credit score adversely in two ways. First, closing a credit card results in an overall credit limit decrease. That will increase your credit utilization ratio and cause issues for you. Next, closing a credit card that you owned for some time can decrease your credit cards average age. The lower the age of your credit lines are, the lower your credit score is. Many credit scoring systems consider the credit age as an essential factor while calculating your credit score.
5.Inaccurate data on your credit report
Incorrect information on your credit reports can result in credit score decrease. Sometimes this incorrect information is elementary as a false report of late payment. However, sometimes this inaccurate information can be complicated errors on banking transactions.
Whatever the wrong information is on your credit report, you should correct it as soon as possible. Technically, they refer to correcting inaccurate data on your credit history as Credit Repair.
Credit score can drop because of many reasons. To avoid credit score drop, you have to be aware of these reasons and prevent them. You must watch your credit report to be mindful of your credit status always. Regularly reviewing your credit reports is one of the essential factors of maintaining a good credit score. If currently, you are suffering from bad credit, you have to start your credit repair process as soon as possible. You can contact enrichfin.com to get free credit counselling, free accurate credit report and credit repair services.