Last time you checked, your credit score was 700. Upon a subsequent check only a few weeks later, you realize that it’s dropped to 675. What gives?
When it comes to credit scores, a host of different factors could be at play in a sudden reduction. You know the importance of having a healthy score when it comes to making big purchases and being approved for various loans, so you want to do everything in your power to make sure your credit score is strong.
If you’ve realized that your credit score has dipped lately, one of these reasons could be behind it:
You Made a Huge Purchase on Credit
Did you make a big purchase over the last month on credit? A vehicle purchase, perhaps? Making a big purchase can put a big dent in your credit score, even if you pay off the balance in full before the end of the month approaches. The reason? Your balance may have been reported prior to you making your full payment. If that’s the case, it could be the reason why your credit score seemingly dropped with a few short weeks.
You Opened Up New Credit
If you’ve recently applied for a new credit card, you risk having your credit score negatively affected temporarily. That’s because when you apply for credit, you’re basically giving the credit card company the go-ahead to look into your credit history. This ‘hard inquiry’ on your credit could lower it. That’s because when the information on your credit report shows you’ve applied for a bunch of new credit cards over a short period of time, your credit score could dip as a result.
You Closed an Old Credit Card Account
Believe it or not, but old credit is actually good credit. The amount of time that you’ve had an account open – even if you’re not using it – shows that you’ve got a decent payment history (hopefully), which is a good reason to keep a credit card, even if it’s been collecting dust in your wallet.
By hanging on to old or unused accounts, you can reduce your credit utilization ratio. On the other hand, if you close out these accounts, you’re essentially wiping some of your available credit, and therefore increasing your utilization ratio. This can cause your credit score to dip.
You Made a Late Payment
Even one missed payment can have a big impact on your credit score. While being a regular delinquent has its obvious consequences, so does missing one payment. If your payment is more than 30 days past due, it’ll probably show up on your credit report. Any late payments 30 days past due is a big deal, and 60 or 90 days late is even worse.
Collections Has Taken Over on Your Unpaid Credit Account
Every single one of your payments needs to be made on time and in full every single month. As we’ve already stated, even one missed payment can make a difference. In order to keep your credit score healthy, all of your accounts need to be paid in a timely fashion, not just your loans and credit card bills.
Even bills to utilities, educational institutions or doctor’s offices that are not paid on time will have a negative effect on your credit score. Keep these accounts unpaid for long enough, and collections will take over, which will show up in your credit report.
Your Credit Limit Was Lowered on a Credit Card
Credit card companies look favorably on those who make their payments in full and on time every month. They also look favorably on those who go nowhere near their credit limit. Unfortunately, the opposite is also true. If you’ve charged an expensive item to your credit card, your credit utilization will go up, and your credit score will go down.
Your credit score is vital to your financial health. Keeping it as high as possible is important, especially if you plan on taking out a loan for things such as a mortgage or a car loan. If you’ve got some qualms about the health of your credit score, talk to a financial expert who can give you some tips and advice to keep it on the up and up.