Why did my credit score drop?
Imagine you wake up one morning and log in to your Credit Sesame account, and you realize that your credit score dropped by 40 points. And you asked yourself why did my credit score drop?
There are several reasons for a credit score drop. It can be that you miss a utility payment. Or, it can be that there has been an increase in your credit card utilization. Or, you might be a victim of identity theft.
Indeed, your credit score does fluctuate from time to time. But a big drop can cause a concern.
Losing points from your credit score can be hard to swallow. Earning those 30, 40 points back can be tough. Here are some reasons why your credit score dropped and some tips on how to raise your credit score.
Why did my credit score drop?
- You missed a payment;
- There is an increase in your credit card utilization;
- Applying for lots of credit in a short amount of time;
- There’s an error in your credit report;
- Closing an old credit report;
- You’re a victim of identity theft.
1. You missed a payment.
Late payments are a big factor causing you credit score to drop. In fact, payment history accounts for 35% of your total credit score. But if you have missed just one payment, don’t worry just yet. There is an easy way to fix it before it gets reported as “delinquent.”
To fix it, just go ahead and make the payment. It’s very unlikely, your service provider will report one missed payment.
But if it’s a few and it’s been more than 30 days, the chance is higher they will report it. In this situation, give them a call and explain your situation.
You can also set up an automatic payment. The goal is to make sure you never miss a payment again.
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2. There is an increase in your credit card utilization.
Credit card utilization is how much of your credit you’re using versus the balance. In order to avoid a credit score drop, you need to keep your balance at or below 30%.
Keeping your credit card utilization below 30% is crucial, because it accounts for 30% of your total credit score.
For example, let’s say your credit card has a total credit value of $5000. You have used $2500 of that credit. Then your credit utilization is 50%. To keep it below 30%, you should only use $1500 of that credit.
To fix this, simply pay it down so it can reach 30% and below. Another way is to ask for an increase in credit limit. That way you cab keep your credit utilization ratio low.
It’s also a good idea to monitor your spending, so think about creating a budget.
So why maintaining a good credit score important? For one thing, it helps you find a good loan with a lower interest rate.
The higher your credit score, the better. If this sounds good to you, shop and compare mortgage loan for the best rates available to you.
3. Applying for too much credit in a short amount of time.
Applying for lots of credit in a short time can also cause your credit score to drop. That is because each time you apply, there is a ‘hard inquiry’ recorded on your credit report. A single hard inquiry is nothing to worry about.
But multiple inquiries in a short amount of time can make your credit score go down and will send a signal that you’re desperate for credit.
How to fix this: So since inquiries makes up a significant part of your credit score, before you apply for a new credit, shop around. And only apply to the one that fits your needs.
Keeping a good credit score is crucial when it comes to buying a house. Want to know if you’re ready to buy a house? Check out this guide.
4. There’s an error in your credit report.
A error in your credit report can cause a sudden credit score drop. It can be a bill that is recorded as unpaid when it was in fact paid.
Or, it can be inaccurate information that does not apply to you at all. When that happens, it results in a credit score drop. And it’s up to you to correct it.
That’s why it’s important to check your credit report regularly, especially before applying for credit.
Visit CreditSesame to get a free copy of your credit report.
5. Closing an old credit card.
You may have had some relief after a paying off a credit card debt. But if you’re thinking about closing it, think again. Closing it may result in a credit score drop. Regardless of whether you’re going to be using it or not, it’s still credit worthy.
How to fix this: it’s always a good idea to leave the credit card open. But if you’re paying fees on it, you may assess whether or not to close the account.
6. Identity theft: another cause of credit score drop.
Another thing that causes a credit score drop is identity theft. Identity theft is when someone uses your personal information, especially your social security number, and uses it as their own.
If you find out that a bunch of credit cards has been taken out in your name and you did not in fact open these accounts, then you might be victim of identity theft.
To avoid identity theft, do not expose you private information in the open.
Bottom line: why did my credit score drop?
The reasons mentioned above are what make your credit score to go down.
To prevent your credit score to drop, you should regularly check your credit report. Checking your credit report once annually is free of charge. However, it is recommended to check it more regularly to avoid any errors that would cause a credit score drop. To get a copy of your report, visit Credit Sesame. It’s totally FREE.
Work with the Right Financial Advisor
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.