Saturday, March 23, 2024
HomeWhat Makes Credit Score Go Down

What Makes Credit Score Go Down

You Have An Account With Someone Who Has A Poor Credit History

Why Your CREDIT SCORE Went Down!

While there are obvious advantages to having joint accounts and shared credit responsibilities, there are also some drawbacks.

In the context of credit scoring, a joint account means that youll be co-scored.

This is only an issue if your partner has a weaker credit history than you . If you both have a good track record and continue to maintain this while you hold your joint account, neither of your credit scores should drop.

But when it comes to co-scoring, the poor spending behaviour of one person can negatively affect the credit score of the other. So, its worth bearing this in mind when you make a joint financial commitment whether thats opening a bank account or taking out a mortgage.

You Recently Applied For A Mortgage Loan Or New Credit Card

Whenever you apply for a new line of credit, lenders will request a copy of your credit report to determine your creditworthiness. They decide whether to lend to you by viewing characteristics like your payment history, credit usage and the types of accounts you currently hold.

Each time you authorize someone other than yourself, such as a lender, to check your credit history, a hard inquiry is recorded on your credit report and could slightly affect your score for up to two years.

As your credit profile matures, it’s natural to accumulate hard inquiries. But if you apply for too much credit in a short period of time, it can negatively impact your scores and affect the likelihood that lenders will approve you for new credit.

Depending on how many inquiries you already have, a new hard inquiry could cause your score to drop, but potentially only for a short period of time. And any effect on your credit score should disappear in about one year.

Inaccurate Information On Your Credit Reports

Sometimes creditors make credit reporting errors. Because of this, its a good idea to review each one of your reports from the three major credit bureausEquifax, Experian and TransUnion. You can view all three of your reports for free weekly through April 20, 2022 by visiting AnnualCreditReport.com.

While reviewing your reports, check to make sure your accounts and personal information are correct. If you spot an error, dispute it with each credit bureau that lists it online, by mail or phone. Also, keep in mind that if you see an account that you never opened, it could be a sign you are a victim of identity theft.

If you believe someone has stolen your identity, file a report with the Federal Trade Commission through IdentityTheft.gov and freeze your credit with all three credit bureaus as soon as possible .

Read Also: When Buying A Car What Credit Score Is Used

Should You Worry About Your Credit Score Dropping

Changes in your credit score are completely normal, so 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.

You may want to take note of large changes in your score as they could be an indication that something bigger is happening for example, if you have unauthorized accounts opened in your name, or youve been a victim of identity theft.

Mistake On Your Credit Reports

What

So far weve assumed that your credit scores dropped because of accurate information on your credit reports. But what if thats not the case?

Lenders can make mistakes too. Thats why its important to check your credit reports to keep an eye out for errors. The CFPB says that credit report inaccuracies are one of the most common issues it deals with each day.

If you find a mistake on your credit reports, you have the right to dispute it with the credit bureaus and with the reporting lender. Companies are required to investigate the dispute free of charge and promptly correct errors that are confirmed.

Read Also: What Makes Your Credit Score Go Down

How Long Does It Take For My Credit Score To Update After Paying Off Debt

It can often take as long as one to two months for debt payment information to be reflected on your credit score. This has to do with both the timing of credit card and loan billing cycles and the monthly reporting process followed by lenders. However, the impact of the debt payment on your credit score may not necessarily be significant.

You Missed Or Made A Late Payment

Your payment history is the most important part of your credit history it accounts for 35% of your total score. That means that even one missed or late payment can cause your score to take a nosedive.

Any payment thats more than 30 days past due will result in your credit card company reporting you for delinquency to one of the two major credit bureaus, Equifax and TransUnion. Payments that are late by 60-90 days or more will ding your score even further.

Unpaid bills will end up going into collections, which means that your lender will hire a debt collection agency to try and recover the money you owe. Any debt you have that goes into collections will stay in your credit report for 7 years and cause serious damage to your score.

What to do:

First things first: make the payment that you missed, as soon as possible. If you stay on top of your payments moving forward, your score will eventually start to improve.

It can be helpful to set a reminder on your calendar app for all of your recurring payments. There are also a number of free credit monitoring services available that will send you an email reminder every time you have a payment due.

Don’t Miss: How Long For Chapter 7 To Come Off Credit Report

Derogatory Remarks On Your Credit Reports

Since your based on information in your credit reports, negative information can drag your score down. For example, if you have a bankruptcy listed on your reports, it can have a negative effect on your score for a long time. A Chapter 7 bankruptcy remains on your credit report for up to 10 years while a Chapter 13 bankruptcy remains on your report for up to seven years.

Some other examples of derogatory remarks that can lower your credit score include collection accounts and foreclosures. An original debt creditor usually sends your account to collections after failing to collect a debt from you. A foreclosure happens when you default on your mortgage. These negative remarks remain on your credit reports for up to seven years.

Although a derogatory remark can stay on your credit report for up to ten years, its impact lessens over time. Also, practicing good credit habits can help you rebuild your credit faster.

You Reached Your Credit Limit

What Makes Up Your Credit Score? (VantageScore 3.0 Model)

Expensive sums on your credit card can have an impact on your credit utilisation ratio. Your credit utilisation ratio is calculated based on the total amount of credit across all balances divided by the total credit limit across all of those accounts.

Maxing out your credit limit or a spike in your credit utilisation ratio can show instability and many lenders and credit reference agencies will take this into account. The lower your credit utilisation ratio remains, the better as it indicates that youre doing a good job of managing your financial responsibilities and not overspending.

Recommended Reading: Does Checking Credit Score Affect Credit Rating

There Was Fraudulent Activity On Your Accounts

Have you checked your statements lately?

An unexpected decrease in your credit score could be the result of fraudulent activity on your accounts.

If you see any charges on your statement that you do not recognize, then it could be fraudulent activity that is bringing down your score. Perhaps someone was able to obtain your credit card information by phishing or through a data breach and used it to run up the balance on the card.

Its important to monitor your credit accounts regularly so that you can catch any suspicious activity early on. Better yet, set up email or mobile notifications on your account that will alert you to fraudulent activity instantly.

If a criminal does manage to get access to your account, report the fraudulent charges to your credit card issuer immediately and ask to have the charges reversed. Most credit card companies have a zero liability policy, which means you wont be held responsible for paying for any of the fraudulent charges.

What You Can Do After A Credit Limit Decrease

A lower credit limit can come as a shock. Fortunately, you can take action to address the lower limit:

  • Contact your credit card company. Ask why it lowered your credit limit. Based on that knowledge, you might be able to take action to get your previous limit restored.
  • Check your credit reports.Monitor your credit regularly and look for any negative issues or errors that might have caused a card issuer to decrease your credit limit. If you see any inaccuracies that could be hurting your credit, work with the issuers of the reports to correct them.
  • Use credit responsibly. Making on-time payments and paying off your balance in full each month are two steps to help improve your standing with the card issuer that lowered your credit limit.
  • Don’t Miss: How To Get Items Removed From Credit Report

    How Often Are Credit Reports And Credit Scores Updated

    When it comes to your credit reports, creditors usually report information to the three nationwide CRAs monthly. However, each creditor may report the information at a different time.

    Similarly, you can usually expect your credit scores to update at least once every month. However, it’s possible your scores may update more frequently depending on how actively you use your credit accounts.

    You should also note that credit scores refresh at different times throughout the month, and there may be instances where it takes a few days or weeks before your scores are updated following new credit activity.

    When you check your own credit scores, what you generally see are âeducationalâ numbers that are intended to give you an idea of your scores for informational and monitoring purposes. So, it’s a good idea to check your credit scores to gauge your credit health and regularly review your credit reports to make sure the information is accurate and complete. For a free monthly VantageScore 3.0 credit score and Equifax credit report, create a myEquifax account and click “Get my free credit score” on your myEquifax dashboard to enroll in Equifax Core Creditâ¢. A VantageScore is one of many types of credit scores. You can also get free credit reports annually from the three nationwide CRAs at AnnualCreditReport.com.

    Learn The Factors That Determine How You Rate

    FHA Loans: Your Complete Guide

    Marcus Reeves is a writer, publisher, and journalist whose business and pop culture writings have appeared in several prominent publications, including The New York Times, The Washington Post, Rolling Stone, and the San Francisco Chronicle. He is an adjunct instructor of writing at New York University.

    A credit score is a three-digit number that helps financial institutions evaluate your credit history and estimate the risk of extending credit or lending money to you. Credit scores are based on information collected by the three major , Equifax, Experian, and TransUnion. The most common credit score is the FICO score, named for the company that devised it, Fair Isaac Corporation.

    Your credit score can be a deciding factor in whether or not you qualify for a loan and, if you do, the interest rate youll pay on it. It may also be used in setting your insurance rates and even be consulted by prospective employers and landlords. This article will explain how your FICO score is calculated, what information is not considered, and some common things that can lower your credit score or raise it.

    Also Check: Does Affirm Help Your Credit Score

    Someone Else Missed A Payment

    If you co-signed on a loan or a credit card for a friend or family member, youre responsible for making sure the payments are made on time.

    When the person you co-signed for misses a payment or runs up a large balance, its your credit score thats on the line, unfortunately.

    What to do:

    If youre worried the person you co-signed for might not be able to make their payments, you should set up the account so that you can monitor it online.

    Schedule a reminder on your calendar app for a few days before the monthly payment is due, and check the statement to make sure that its been paid up.

    In the event that the payment has not been made, you might need to cover it yourself if you want to prevent your credit score from taking a hit.

    You also should consider having a talk with the person you co-signed for, and explaining that your credit score has been affected. It might be a bit awkward, but, unless your family member or friend starts making timely payments, the only alternative is to close the account.

    Also Check: Is 818 A Good Credit Score

    The Passage Of Time Affects Your Credit Scores

    Even if there are no changes to your credit reports, the passage of time could cause fluctuations in your credit scores. If you have a late credit card payment, for example, its effect on your credit scores may diminish over time. That doesn’t mean that it’s okay to make a late payment. One of the best habits you can get into is paying your bills on time every time.

    You May Like: How Is Your Credit Score Calculated

    Applying For Too Much Credit

    Making too many credit applications in a short space of time could damage your credit score. When you apply for new credit, most lenders will run a hard search to look at your credit report and decide whether to approve your application.

    Most hard searches are recorded on your credit report for around 12 months and are visible to other lenders. Typically, lenders view lots of credit applications in a short space of time as a sign that you are facing financial difficulty and may not be able to afford repayments. This increases your chances of being rejected for credit, which could cause your credit score to go down.

    Try to limit the number of credit applications you make to one every three months. It is also worth using an eligibility checker before applying for new credit.

    Eligibility calculators check your credit history using a soft search, which is not visible to lenders. They calculate your chances of being accepted for products, such as credit cards and loans, using data in your credit report.

    » MORE:Try our loan eligibility checker to find out your chances of being accepted for a loan

    Youre Using Too Much Of Your Credit Limit

    Why Credit Scores Are Completely Bogus!

    If you max out your credit card, this could result in a quick drop of your credit score. Depending on your cards limit, when you make a big purchase or run up your balance, it impacts your . This is the amount of available credit you use and according to FICO, it makes up 30% of your overall credit score. So its a pretty important factor!

    Its calculated by adding up your credit card balance and dividing it by your total credit limit. Say you usually spend about $2,000 a month and your total credit limit is $10,000. Your utilization ratio would then be 20%. A good rule of thumb is to keep your ratio below 30% . Increasing your credit utilization can show lenders that you might not be in the best position to take on new debt.

    You May Like: Is 736 A Good Credit Score

    Communicate With Your Lenders And Credit Bureaus About Inaccuracies

    Even just one mistake could bring down your credit score. If you see a mistake, say something! You have the right to dispute any report errors with your lenders and credit bureaus. It does take time for the request to go through and follow up with your lenders, but its important to go through the process. Especially if youre building credit or planning to apply for a large loan. Typically, credit bureaus do have 30 days to investigate and respond, but some banks are faster or slower depending on their system.

    Taking Out New Credit

    If youâve taken out new credit, you might be surprised to see your credit score has dropped. There are two reasons why this can happen:

    • When you apply for credit a lender will carry out a âhard searchâ or a âcredit application searchâ on your report. This type of search is recorded on your report and it can negatively affect your credit score. If youâve applied for several lines of credit in a short space of time, this may further impact you score. This is because it can give the impression to lenders youâre too eager for credit, which may put them off. .

    • When you take out a new line of credit the average age of your credit accounts will decrease. This may cause your score to go down as lenders tend to prefer seeing older credit accounts. This is because this behaviour suggests stability, which helps prove to lenders that you’re a reliable borrower, and a lower credit risk. Once your account gets older and the average credit age on your report goes back up, your credit score should build back up again. So, applying for credit can cause your score to drop slightly at first. However, if you pay back your bills on time and in full, and keep your credit usage in check, the chances are your credit score will recover. It can even help it to improve over time.

    Recommended Reading: How To Lock And Unlock Your Credit Report

    RELATED ARTICLES

    Most Popular