Getting Your Credit Score Back In Shape
Taking care of your credit is one of the smartest financial decisions you can make. There’s plenty of ways your credit score can drop, some of them more severe than others, but they’re all fixable if you know what you’re doing.
If your credit score recently went down, start by figuring out what the cause is. Then follow the steps above to fix the problem.
Dispute Credit Report Errors
Sometimes the reason you see a credit score drop on your report can be a simple one: human errors and technical glitches on your credit report.
If your credit score changes without any unusual activity on your part, a look at your report may help you find the cause. Often, credit reports can have information on your account that is either outdated or incorrect. A study of the credit reporting industry, conducted by the Federal Trade Commission , found 20% of consumers have at least one error across their credit reports.
Its important to note that the three major credit bureausEquifax, Experian, and TransUnioneach produce separate credit reports and credit scores for every consumer. And although they are accessing the same information about you, they each have their standards and practices. Considering the vast amount of data these companies compile for millions of people, errors are almost unavoidable.
There are a ton of errors that can show up on your . For example, accounts that are settled or closed can appear to be opened or have balances that can affect your credit utilization. Payments that are on time can be listed as late or even delinquent. There have even been cases where people sharing the same or similar names have had their information switched or misplaced.
Your Identity Could Be Compromised
Identity theft is another cause for concern and can negatively impact your credit. Lets say someone steals your personal information and opens a credit card in your name, racking up a bill.
This may impact your credit because its a new inquiry. If the fraudster in question makes charges close to the limit, that can impact your credit utilization in a negative way. Finally, missed payments on the account can hurt as well.
Unbeknownst to you, your credit score could free-fall because of identity theft. If youre experiencing identity theft, use IdentityTheft.gov to report the activity and create a plan to move forward.
You can also activate a fraud alert via the national credit bureaus Equifax, Experian, and TransUnion. Credit monitoring may also help you stay on top of credit activity so you can flag any suspicious activity.
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Your Credit Card Balance Was High
If you can pay the balance off on your credit card each and every month, perfect! Thats one step that will inch you closer to an 850 credit score. But if you do need to carry a balance, be sure to keep your credit utilization under 30 percent.
Now, say youve been doing exactly that, but you are still seeing an unexplained drop in your score. You may want to check in with your credit card company to find out the date that they report to creditors.
While youd think the dates when your credit card companies report your usage information to credit bureaus would sync up nicely with your due dates, thats not always the case, experts at Equifax confirmed for us.
What Do Lenders Report To The Credit Bureaus
Experian, Equifax and TransUnion receive positive and negative information from lenders every month about millions of Americans. However, not every credit provider reports to all of the credit reporting agencies lenders pick and choose which and how many bureaus they report to.
Data reported to the credit bureaus are:
- Account activity. If your account is open and in good standing, closed, delinquent, default, charged off or sent to collections.
- Payment history. On time, late or missed payments. Late payments will be reported in days 30, 60, 90, 120, 150 days late.
- Account balance. How much your current balance is compared to your credit limit this is your credit utilization ratio.
- Credit card and loan applications, requests to change your credit limit, or anything else thats registers a hard pull of your credit will be reported.
- If you have an authorized user on your credit card account, any activity on the account from their usage will be reported on your credit report since youre the account owner.
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Hard Inquiries Can Impact Your Credit Score
If you applied for a new credit card or a loan, the issuers or lenders likely did a hard inquiry or a hard pull by pulling your credit report to see how creditworthy you are. This hard pull can lower your credit score temporarily. While hard inquiries can remain on your credit report for two years, FICO only considers inquiries from the last 12 months when calculating your credit score.
Why Did My Credit Score Drop
When information is updated in your credit report, your score may change as well. By how much depends on the nature of the updated information. Because information in your credit reports may be updated frequently, changes that cause your score to fluctuate may not be obvious.
There are also different scoring models and many companies that provide credit scores. Scoring models may change over time as they update how information is processed and a score is calculated. Its common to see differences in scores from one model to the next. That said, if you see a big drop in your score, its usually triggered by something specific.
Below are some common reasons why you might see a drop in your credit score, along with what to look for on your report.
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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 .
Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most the different types of lending options, the best rates, the best lenders, how to pay off debt and more so you can feel confident when investing your money.
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Explore 9 Reasons Why Your Credit Score Could Dropand What You Can Do To Help Fix It
If your credit score has dropped, donât panic. Small changes in your scoreâup or downâare normal. Thatâs because the information in your credit report is updated regularly. And these updates can impact your score.
You should be aware that thereâs no such thing as one definitive credit score because there are multiple credit scoring companies that use different scoring models. Your credit scores might be different depending on which credit scoring company calculated them and which scoring model was used. But if youâre seeing a big drop in your credit score, there could be other reasons for that.
Why Did My Transunion Score Drop But Equifax Went Up
The credit bureaus may have different information. And a lender may report updates to different bureaus at different times. So, it’s possible that Equifax and TransUnion could have different credit information on your reports, which could lead to your TransUnion score differing from your Equifax score.
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Closing A Credit Card
Just like paying off a loan, closing a credit card is another way that favorable action can hurt your credit score. Not only does closing a credit card get rid of an account , it will also decrease your available credit. If you dont reduce your spending, that new lack of recognition could create a high credit utilization ratio.
If the credit card was an older account, closing it will also affect the average length of your credit history, showing lenders that you can manage credit well over time. While completing a statement that you can afford is a perfect thing, available credit can come in handy under many unexpected circumstances. For example, there may be a surprise expense, like an unexpected repair or an emergency medical expense, where a credit line may help you finance the solution you need. If you can, consider holding onto the account.
One Of Your Credit Limits Was Lowered
A lower credit limit has the same impact as charging an expensive item. If you have a balance on a credit card with a low credit limit, your goes up, and your credit score goes down. You may not have control over whether your credit card issuer reduces your credit limit, but if this happens, paying down your balance can improve your credit utilization and your credit score.
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Mistake On Your Credit Reports
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.
Your Credit Card Balances Are Higher
If youre using more of your available credit than usual, it drives up your credit utilization ratio. If youve made any large purchases it will cause your credit usage to increase, which will cause your score to decrease. The higher your total credit limit, the less impact minor fluctuations in credit utilization will have on your credit score. A good practice to adhere to is not to go over 30% of your credit limit in a given payment period.
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Dont Let A Dip In Your Score Delay Your Financial Goals
In most cases, a slight drop in your credit score isnt reason to worry. Still, its essential to get familiar with the financial habits, activities, and factors impacting your score.
Most importantly, make it a priority to practice wise spending and borrowing habits. What you spend, save, and borrow can have a lasting impact on your current and future financial wellbeing.
Late Or Missed Payments
Late or missed payments can have a significant impact on your credit score. A late payment is defined as a payment that is more than 30 days past due. A missed payment is a payment that has not been made within 60 days of the due date.
If you are a couple of days late on a payment, it is probably nothing to worry about. But, once payments are more than 30 days late, card issuers will report them to the credit bureaus as delinquent.
Because late and missed payments are considered negative information, these delinquencies can damage your credit score. The severity of the damage depends on how late the payments are, how much you owe, and whether you have any other negative information on your credit report.
According to FICO data, if you have a 30-day missed payment, your credit score can drop 17-37 points if you have fair credit and 63-83 points if you have good or excellent credit. The longer you miss a payment, the further your score will drop. Note that the higher your credit score is, the greater your credit score will fall.
If you have late or missed payments, be sure to take steps to improve your payment history rating by making all future payments on time and bringing any past-due accounts current. You may also want to consider contacting creditors to negotiate more favorable terms for repayment.
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Why Did My Credit Score Go Down When Nothing Changed
Sometimes your score does change based on factors outside of your control, but most times your behavior influences your score in ways that may not be obvious.
Lets take a look at the factors that influence your score and a few reasons as to why it might change even when you dont think youve changed your behavior.
Why Does Your Credit Score Drop When You Check It
Your credit score shouldn’t drop when you check it yourself. These pulls are typically soft inquiries, which don’t affect your credit score. If a lender or creditor checks your credit score, that may lower it.
Hard credit inquiries, or hard pulls, do affect your credit score. These happen when a lender or credit card issuer pulls your credit to determine whether to extend credit to you. In this case, you should be aware and consent to the pull.
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More Than 30 Days Late On A Bill
Late payments are best avoided, we all know that. But sometimes they happen.
If you find yourself in this situation, the best thing to do is to pay the bill and the late fee as soon as possible. Doing so within 30 days will avoid any lasting problems.
However, if your payment is late by 30 days or more, it will be reported and will appear on your credit report. As the table shows, the effect of a late payment will only get worse the longer the bill is left unpaid.
Increase In Credit Utilization
The Consumer Financial Protection Bureau recommends you maintain a credit utilization ratio of no more than 30%. The lower, the better. A low credit utilization shows potential lenders you are a responsible borrower and are more likely to repay your credit card debt easily and quickly.
A change in the amount you owe can cause a significant deterioration in your score. Take time to look at your credit card purchases in the recent past.
If you have charged your cards more than usual perhaps with a big-ticket purchase , your utilization has grown, and with that comes a negative impact on your credit score.
Solution: If you have had a large purchase recently, work on paying it in full before the current billing cycle ends. Pay down the balances until you are back to utilizing a more acceptable proportion of your credit.
Alternatively, request for a higher credit limit. Find out if the lender can raise your limit without a hard inquiry.
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Change To Average Age Of Credit
Your average age of credit shows how much experience you have in managing credit responsibly. Different scoring models calculate this in a variety of ways:
- Finding the average age of your open accounts
- Using the age of the oldest account
- Taking into account closed accounts if theyre still featured on your credit report
If you have closed one of your older accounts, this will have lowered the average age of your credit. This may even have happened several years in the past, depending on which model your lender uses. Furthermore, under some models, opening a new line of credit could also lower the average age, with the same effect.
Derogatory Mark On Your Credit Reports
Derogatory marks on your credit reports indicate that you didnt pay a loan as agreed in some way. Here are a few reasons why your bank or credit issuer may have placed a derogatory item on your credit report.
Unlike hard credit inquiries, derogatory marks dont fall off your credit reports in two years. Instead, theyll typically remain on your reports for seven to 10 years.
That means your credit scores could be negatively affected by a derogatory mark for close to a decade. But the good news is that the effect of a derogatory mark goes down over time.
Additionally, you may be able to get certain derogatory remarks taken off your credit reports. If you see a derogatory remark on a report, first verify that its legitimate. If its not, contact the credit bureaus to dispute it. If youre a Credit Karma member, you can use our free Direct DisputeTM feature to help dispute the error.
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