Man looking at his phone and holding his credit card

My Credit Score Dropped, Why?

There are many reasons why your credit score could be declining, including an accidental default or non-payment or the request for an extension of credit or modifications to how much you can spend on your credit limit or the amount you use.

The factors that impact your credit scores align with how credit scoring models establish the scores. That means the most important information you possess about credit is the elements that affect your score. 

Your payment history constitutes the most significant component in the most commonly used FICO model of the score. It is a sum based on your current credit card balance and credit history.

Other factors can affect your credit scores, such as inaccurate information on your credit report. Paydaydaze offers a wide range of services that can increase the quality of your credit score. Below are the top causes of a credit score dropping and how you can return to it after being affected.

Late or have Missed Payments

Your payment history is the most important factor when calculating the FICO score. It’s the most well-known credit score system. It’s responsible for about 35 percent of the score. Even one late or missed payment could harm your score. It is therefore essential to payments on time.

If you are more than 30 days past due on the due date, credit issuers will declare the late payment to at least three significant credit bureaus, which will result in the reduction of your credit score. A bad credit score will be caused if your due date is sixty or ninety days overdue.

If the loans are not resolved in whole or in all, the creditor may transfer the account to a collection agency, which will be reported as a credit report item on your credit report.

Your information regarding missed or late payments will be on your credit report for seven years. 

Additionally, positive payment history on an open account will be on file for a lengthy period (or over ten years if the account is closed and in good standing). Be sure to make every payment on time to show evidence that excellent credit behavior will improve your credit score in the future.

You recently made an application for a mortgage, loan, or credit card

If you’re seeking an additional credit account, the lender may ask for copies of your credit report to assess your creditworthiness. They decide if they want to provide you with credit by reviewing factors like your payment history, credit usage, and the kinds of accounts you have currently.

If you allow someone other than you, for instance, or a bank, to investigate the authenticity of your credit information, the challenging request will be recorded on the credit report. This could affect the credit rating for up to 2 years.

If the credit is getting worse as you age, it’s common to have hard inquiries. Suppose you attempt to apply for a large amount of credit within a short period. In that case, it could negatively impact your credit score and reduce the likelihood that lenders consider your application to obtain new credit.

Based on the number of inquiries you’ve completed, a new inquiry could have an impact on your credit score; however, it might only affect you for a short period. A negative effect on your credit score will disappear after around one year.

The amount of credit you use has grown.

If you decide to use your credit card can lead to a significant decline in how much you value your credit score. Following your credit card’s credit limit, making substantial purchases, or adding the balance to your credit card could increase your credit usage ratio. 

This is the second most significant element in you calculating your FICO(r) score. A more high credit utilization ratio could signal to your lenders that you’ve stretched too thin and that it’s not a good time to consider accepting new loans in financial terms.

The credit utilization ratio is determined by adding all the credit account balances at any period and then dividing the total by the amount of your total credit limit. 

This is also known as your credit limit or revolving credit limit. Also, if you charge around $2,500 per month, and your credit limit for all of your credit cards is $10,000, then your utilization ratio is 20 percent.

Make sure to keep your credit utilization ratio at or less than 30 percent and, to achieve the best score, make sure it is below 10 percent. 

When your overall credit amount is $3000, be sure to keep your balance at or under $3000 to ensure your score is in good shape.

A Credit Limit has Reducing.

Lowering your credit limit can increase your credit utilization ratio, which might impact your credit scores.

In the previous example, we saw the max credit amount was $10,000, and you had an amount of $3000. In this case, your utilization ratio would be 30. 

If a credit issuer reduces your limit by $6,000, but your balance stays the same, your utilization ratio would be increased to 50. This could lead to losing your credit score, which could cause your credit score to drop.

Credit card issuers establish the initial credit limits based on several factors, including your income, your ratio of income to debt credit record as well as your credit score. The issuer can reduce your credit amount if, among other reasons, you’ve used your credit card frequently or don’t pay your bills or make payments promptly.

It is possible to request a credit limit increase with your present credit card issuers or even open an account with new credit accounts if you’re worried that your credit limit isn’t adequate. 

But if your limit is recently lower, an increment may be challenging to obtain. It’s best not to apply for additional credit until you’ve seen your score increase.

Whatever the case, if your credit limits are shrinking and your credit balances increasing, be conscious of the credit utilization ratio. It can help you in understanding the change in your credit score.

You have shut down the credit card.

Be careful when you close the account of a credit card that you don’t require. Closing a credit card account using a credit card will not only increase the ratio of your utilization but could also affect the length of your credit history, Both of which can impact your credit score.

If you shut down the credit account of a card, the credit limit is removed from your utilization ratio in general and is likely to lower your score. The removal of the credit account you’ve used for a long time may also decrease your average credit age. This could affect your credit score.

Lengthy credit history is a factor of 15 percent of a FICO score. This means that having an extended credit history can improve your score. 

Keep in mind that when your account is shut and in good shape (meaning you made all your bills on time), it can remain on your credit report for up to 10 years.

Suppose your credit card has a high annual expense that isn’t feasible to pay for or encourages customers to pay more than they should.

In that case, it’s not necessarily a bad idea to keep the credit card inactive status to ensure you’re keeping the credit amount in good standing and credit history.

There’s an error in the information on Your Credit Report.

Every month, checking the status of your credit reports is one of the most efficient ways to ensure there aren’t any errors in the credit report. 

Although it’s not common practice, mistakes happen, and incorrect information may show up in the credit report, such as inaccurate personal details or payment history, which can cause your credit scores to fall.

If the information in your credit you’ve given is incorrect, it could be because the lender does not provide accurate information. 

This could also mean you’ve been the victim of identity fraud. If you discover the information you consider incorrect, you must contest the data by contacting the three major credit bureaus as soon as possible. Be aware that certain information aspects are not subject to dispute, such as credit inquiries, exact birth dates, and credit scores.

You’ve Had a Major Life Event, Like Foreclosure or Bankruptcy.

The late payment that could cause foreclosure or bankruptcy could hurt your credit scores. These circumstances could cause more problems.

The legal option is used by those seeking to get rid of the burden of debt. It is among the most significant damaging situation that could affect someone’s credit. Foreclosure is the time the mortgage lender has to seize your property within four years of unpaid payments. It’s the same as bankruptcy in terms of credit damage.

In addition, it could affect the credit score, which could make you ineligible for certain types of loans in the near time. A mortgage lender might not accept an uninsured borrower if you were in bankruptcy in the past. An accurate foreclosure record displayed in your credit report will show over seven years.

The period that bankruptcy information is included on your credit report will be determined according to the kind of bankruptcy filed. Chapter 7 bankruptcy, for instance, appears listed on the credit file for ten years starting from the date of filing. Chapter 13 bankruptcy appears for seven years.

What is a Good or Bad Credit Score?

An excellent credit score can bring numerous benefits, including the possibility of saving substantial amounts of money and stress over time. 

A high score can allow you to obtain higher credit products at lower interest rates. Scores that aren’t as high are the opposite.

It may hinder your ability to be eligible for certain types of credit or lead to you receiving credit products with more excellent interest rates because your credit profile has an increased risk of becoming a risk to the bank.

The credit scores can be classified according to different scoring intervals. Many scoring models, such as those that use an algorithm called the FICO Score, use a gap between 300 and 800. Based on this approach, scores that are higher than 800 are thought to be exceptional.

However, anything higher than 700 is typically considered to be acceptable. Scores below 669 are considered fair or low. In 2020 average FICO(r) Score in America was 710. U.S. was 710, according to Paydaydaze’s stats.

Tips to Improve Your Credit Score

If you’re trying to improve your credit scores, then these tips can help.

  • Make sure you pay your bills on time. This is one of the most critical steps to maintaining a great credit score. The most effective method of ensuring that you pay on time is to set up automatic payments to ensure that you never overlook the payment of a charge. You should ensure that you have enough money in your account at the bank to avoid an overdraft.
  • Minimize overall debt. If you can do so, don’t rely on credit to purchase items that you cannot pay in cash or repay up to the end of each month. This helps keep your costs under control and keep the credit utilization ratio lower. The aim is to bring your credit card balance until it is zero by the close of each month.
  • Be sure to check your credit regularly. There are many ways to check your credit score for free and via Paydaydaze. This can help you identify any gaps in your score quickly and then make adjustments if necessary. The free credit monitoring provided by Paydaydaze can help keep on top of both your FICO Score and the details of your credit report. They will notify you of any changes to or modifications on or changes to your credit report.
  • Don’t apply for unneeded credit cards. Some credit cards include yearly fees, which may be pricey, and having too many cards can lead to overspending.
  • You must ensure that you spend your money wisely. A budget — even one that separates your spending into various buckets that don’t require any maintenance, can aid you in sticking to your budget over the long run.

Facing your credit score dropped

A decrease in your credit score is a stressful experience, but it doesn’t have to continue for a long time. There are ways to bring your score back on track and prevent a decrease from coming later on. 

This important concept may be applied to various parts of your life, not just finances.

Learn details about your Credit Score

What is a fantastic credit score?

A credit score higher than 600 is typically considered an outstanding credit score. There’s a chance to make some improvements. Here’s what you must be aware of.

How to Improve Your Credit Score

There are steps that you can take to improve your credit score. The earlier you tackle specific issues and act more quickly, the faster your credit score will rise.

What impact does it have on the effect of your credit score?

Knowing what factors and types of accounts impact credit scores are a crucial first step in improving your credit score. This could make you hundreds of dollars in time.

What is the time frame to obtain the information from Your Reports You Have Credit Reports?

If you’re experiencing issues with your credit score or credit report, the time is ticking. In the event of late payments, delinquencies or even defaults may eventually disappear on their own.

How to solve the issue of Credit Report Information

Here’s how to change information on the credit report, which is called an “adverse event.”