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Should You Worry About Changes To Your Credit Score
Changes in your credit score are completely normal. Theres no need to worry about small fluctuations.
That being said, its good to check your credit report at least once a month so you can monitor these changes when they occur. Remember, a changing score means changing information. If you see a big change in your credit score, make sure you know what triggered it.
Who Can See And Use Your Credit Report
Those allowed to see your credit report include:
- banks, credit unions and other financial institutions
- offer you a promotion
- offer you a credit increase
A lender or other organization may ask to check your credit or pull your report”. When they do so, they are asking to access your credit report at the credit bureau. This results in an inquiry in your credit report.
Lenders may be concerned if there are too many credit checks, or inquiries in your credit report.
It can seem like you’re:
- urgently seeking credit
- trying to live beyond your means
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Have I Paid Back My Loans In The Agreed Way
If you have not paid back your loans in the agreed way, the credit issuer may place a derogatory mark on your credit report. The derogatory mark is placed on credit reports where there is a tax lien, a bankruptcy, or a foreclosure.
These can very negatively impact credit scores, so lets go through them:
Bankruptcy is a legal process the borrower starts where they cannot repay the debts they owe and are looking for relief from debt payment. A bankruptcy can lower your credit score for 6 years.
Foreclosure is where your mortgage lender will take possession of your house, because you have consistently missed your payments. A foreclosure will lower your credit score for seven years from the day of the missed payment.
Other financial settlements such as a County Court Judgment and an Individual Voluntary Agreement will also affect your credit score leading to a scores drop.
Remember your credit score is calculated by looking at your past financial history. A lender may consider it risky to lend to someone who has a history of failing to make their payments.
Can A Credit Score Drop Even If Nothing Changed On My Credit Report
It can sometimes seem like your credit score fluctuates up or down even if you seemingly havent done anything to influence it.
Sometimes your score does change based on factors out of your control. For example, there are different scoring models for calculating your credit score based on your financial information. It is common to see differences in scores from one model to the next.
However, if you see a big drop in your score, it is usually triggered by something specific. Most times your behaviour influences your score in ways that may not be obvious.
Below are some common reasons why your credit score may go down when nothing has changed. This will give you an indication of what to look for on your credit report.
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Equifax Dispute Lowered My Credit Score 72 Points
In this article, Ill cover how to dispute a record on your Equifax credit report, a simple template you can use to make it easy, and what to expect in the event that your score temporarily drops as mine did.
Lets start with some important resources:
I have been following a three-step 90-day credit sprint plan. I disputed an Equifax credit record and my credit score was lowered 72 points!
Luckily, a few days later I got all of my credit score points back and then some!
I want to go over my experience so that if you suddenly see your credit score sharply fall after disputing your credit history, you wont freak out.
Dont Panic! Heres what to do if an Equifax Dispute Lowers Your Credit Score.
The first step toward a credit record dispute is to review your credit records from each of the big three credit bureaus . Youll want to locate and dispute any inaccuracies.
What Causes A Credit Score To Drop
The factors listed above are usually related to a drop in your credit score. For example, if you have late payments, applied for multiple lines of credit/loans in a relatively short amount of time, and/or have increased your overall debt load, you may find that your credit score has taken a hit, and as a result, you have a low credit score.
If you’ve recently noticed a drop in your credit score, it may be due to one of the following reasons:
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You Closed An Old Credit Account
Even if you don’t plan on using a card again, it’s recommended that you donât close out the account. This can drop your utilization ratio â since your total credit will decrease â and make your score decline quickly. It also shortens your overall credit history length, which is another important factor in your score.
âSolution: Rather than closing your account, pay it off and leave it open. If possible, do what you can to keep it active, which may mean making small purchases to it every year or so.
You Have Negative Markers On One Or More Accounts
This is one of the more obvious reasons why your credit score might have dropped.
When it comes to maintaining your credit score stability and reliability are critical. Lenders measure these by checking youve made all of your required payments on time. Even just one missed or late payment can negatively impact your credit score, so its important to keep on track with your payments.
Your credit score is always under scrutiny, so you should always aim to make your payments in full and on time every month.
If you applied for a payment deferral with your lender before 31 March 2021 due to the Coronavirus pandemic, this may be reflected differently on your credit report. However, if you had previously paused your payments for six months, any further reduction or payment deferral is likely to be visible on your credit report. For more information, see Experians guide on payment deferrals.
If you have any queries regarding payment deferrals and how it affects your credit report, talk to your lender.
Other negative markers that can affect your credit score include having previously declared bankruptcy, being subject to a County Court Judgement , or being the victim of identity theft.
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Ways To Improve Your Credit Score
If youre looking to improve your credit score or just want to keep it going strong, there are steps you can take to maintain a healthy credit score. Follow the steps below to build good credit:
As mentioned earlier, its normal for over time. If you notice that your credit score has dipped a few points, it may due to something simple such as a big purchase you recently put on your credit card which would increase your utilization rate.
However, if you notice that your credit score has dropped a substantial amount, such as 50 to 100 points, thats cause for concern. After noticing such a dramatic drop, check that you havent missed a payment or suffered fraudulent use of your information or one of your accounts.
Your Balances Got Too High
If you’ve recently been charging more than usual onto your credit card or you used it for a big purchase, that can raise your credit utilization. Credit utilization is 30% of your FICO® Score, and your card issuers report your balances every month, so it’s a factor that can change your credit score quickly.
Your credit utilization is simply your combined credit card balances compared to your combined credit limit. Let’s say you have $1,000 in available credit and $700 in balances. That would put your utilization at 70%, which is considered too high and would damage your credit.
How to fix it — Reduce your credit utilization to 30% or less and you’ll quickly raise your credit score. Here are three ways to do this:
- Pay down your balances.
- Ask your card issuers to increase your credit limits, as more available credit lowers your credit utilization.
- Open a new credit card. When its credit limit gets added to your credit file, it will increase your available credit.
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You Closed Some Credit Card Accounts
I must ask you about the two credit cards you paid off. Did you pay them off and close the accounts? If so, the utilization points in your score will have gone down because you lost the available credit from those cards.
This is one reason it is important not to close accounts if you can prevent it. These credit limit limes are tied directly to your credit utilization ratio, which counts for 30 percent of your overall FICO score. Try to keep credit cards open whether you use them or not unless you are being charged a large fee for their use.
Heres a tip: If you have two cards at the same issuer bank when you close one, ask to have the credit limit on the closed account added to your remaining open account. This keeps your utilization factor low while saving you an annual fee.
You Had An Account Reported To Collections
A collections account can wreak havoc on your credit. The original creditor will report that you didn’t pay, and then the collections agency that buys the debt will also report it to the credit bureaus.
If you had an excellent credit score to begin with, a collections account could easily drop it by 100 points or more.
How to fix it — First, verify that it’s a legitimate debt. If not, you can dispute it with the creditor and whichever credit bureaus have the debt listed on your credit report.
Collections accounts can damage your credit for years, but you may be able to negotiate what’s known as a “pay for delete” with the collection agency. Simply put, you let the agency know that you’ll pay off the account only if they agree to take it off your credit file.
Not every collection agency will agree to this and the credit bureaus frown on it, but it’s worth a shot.
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What Drops Your Credit Score
If your credit score dropped for no reason, it might make you start to worry why. One way you can avoid being surprised by changes in your credit score is to keep track of all financial transactions which may result in a credit enquiry. Suppose you missed paying a utility bill while on holidays and the supplier couldnt reach you, resulting in the late payment being classed as a default. Your provider will likely report the default to the credit reporting agency, but at a later time. This may cause your credit score to go down when the credit reporting agency gets the information. Because of the delay between your lack of payment and when your score goes down, it can seem random.
The credit reporting agencies calculate your credit score based on the information they receive from lenders, banks, credit card providers and utility companies, among others. They will take into account both the credit enquiries these companies make as well as your payment history with them. The agencies may also factor in your employment history as well as the number of years youve had a credit file open. Business owners may also find that their credit report includes a commercial section. Understanding the specific reason your credit score has dropped – or increased, for that matter – can therefore require a bit of research.
Some of the common incidents that can negatively impact your credit score include:
Some Accounts Dont Appear On Your Credit Report
Some lenders dont report to the bureau every month. So, look for payments that should be there but are not. Remember, it costs the lender money to tell the Big Three youve paid a bill. Auto lenders may be quick to repossess a car if you miss a payment but may find little advantage in reporting a paid-off loan instantly. So, it may take a three-month period for that good news to get published.
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How Credit Scores Are Calculated
Because we can’t see inside these algorithms, the way they respond to certain changes can be unpredictable. A major change to your credit, like, say, paying off a long-running auto loan, can create an instability in your score, said Rod Griffin, senior director of consumer education and advocacy at Experian, a competitor to Credit Karma.
This change shouldn’t be permanent, Griffin said.
“What we typically see is it’s not usually huge and it’s usually short-lived, so if you give it a payment cycle or two, it bounces back to what it was,” he said.
A change to my credit mix: Having a variety of credit, including credit cards, mortgages and auto loans, is generally good for your credit score. Removing a loan your portfolio of credit can have a negative impact.
Shortening the length of my credit history: That auto loan was one of my oldest credit accounts. Closing it could have shortened the overall age of my accounts, leading to a drop in my score.
Hereâs our explainer on building credit and what makes it change.
You Applied For New Credit
Any application for new credit, be it a credit card, a line of credit, or a loan, results in a hard inquiry on your credit file. Each hard inquiry can cause your score to drop a few points, although it’s nothing big.
How to fix it — There’s no work needed on your part this time, as hard inquiries only affect your credit for a year. One hard inquiry won’t cause that much of a dip in your score.
You will, however, want to avoid any more credit applications so that your score can recover.
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How Do I Get My Credit Score
The first way to check your credit score is by inspecting your credit card statement. Some major credit card companies offer this report on a monthly basis, but you can also view it by logging into your online account. This is probably the easiest and most commonly-used way to see if your credit score keeps dropping.
Another way to check your credit rating is to use credit score services. Just make sure to read the fine print. Some of these companies advertise their assistance as free but only offer a free trial after which they proceed with a monthly subscription .
Then again, those who believe that their credit score dropped for no reason may decide to buy their credit score directly from the company. Because this is the most direct form of inquiry, its also the most reliable of your options. This purchase sometimes goes together with products like credit protection or identity theft monitoring. These, nonetheless, are not mandatory.
You should also know that youre entitled to one absolutely free credit report every 12 months from each of the three nationwide credit reporting agencies Equifax, Experian, and TransUnion. This is an advantage that you should use in order to get a more accurate estimate of your financial standing.
Reasons For Credit Score To Drop
There are many factors involved in developing your credit score, so it may be difficult at first to determine what exactly caused a decrease. Start by seeing if any of these apply, then check out the solution for each situation. Itâs also possible for several factors to influence your score at once.
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Improving Your Credit Score
As we said earlier, once your credit score has dropped significantly, it can take a lot of time and effort to raise it back up. That being said, one of the main ways of improving your credit score bit by bit is to be responsible and proactive when it comes to your finances and credit-related products.
Want to learn some ways of increasing your credit score quickly? .
Want to get a free copy of your credit report? Look here.
While it might be a chore, raising your credit score as much as possible not only promotes healthy financial habits, but it increases your chances of securing any future credit products you might need. What if you want a house someday? No lender will want to approve you for a mortgage if youve got a low score and a long history of unpaid debts. The sooner youve improved your credit score, the sooner you can get back to thinking about whats really important to you.
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