8 Reasons Your Credit Score Declined

Borrowing, Credit Rating

What happened to your credit score? It’s dropped considerably since the last time you checked, and you have no idea why.

Maybe one or more of these events is behind the decrease.

1. Missing Payments – On-time payments is one of the biggest factors that make up your credit score.

Make all credit card and loan payments by the due date to avoid a credit score hit. Verify that automatic payments are working, and if a change is made, verify with your creditor that you won’t miss a payment during the transition.

2. Using Too Much Of Your Credit – Your credit limit is just that – a limit, not a target. When you get close to your credit limits, creditors see increased risk. Are you racking up more charges than you can pay off given your regular expenses?

Keep your total credit in use at any one time (your credit utilization) below 30% of your credit limit. Consumers with excellent credit often keep their credit utilization in single digits.

3. New Credit Applications – Each time you apply for credit, a lender makes a “hard pull” on your credit report, dropping your score slightly. That’s not a big issue unless you are applying for multiple new sources of credit and they aren’t obviously directed toward the same purchase (such as shopping for a mortgage loan with different lenders).

4. Paying Off a Big Loan – Why would paying off a loan drop your credit score? If you have no other loans, a payoff decreases the diversity of your credit – a minor factor in calculating credit scores. Your remaining accounts carry more relative weight in a credit evaluation.

5. Adverse Events – Items like foreclosures, bankruptcies, and accounts in collections are considered adverse events – derogatory items in your credit report that translate to your credit score and tell creditors it’s risky to lend you money.

Prevention is key – if an adverse event really is yours, only responsible credit use over time will clear your record.

6. Credit Report Mistakes – Have you checked your credit report recently? Maybe an adverse event was assigned to you when it belongs to someone else.

Credit reporting agencies have been tightening up their reporting practices to eliminate errors, but they aren’t perfect. Get a copy of your report from each of the three main credit reporting agencies (Experian, Equifax and TransUnion) and check them for errors. Review all three reports for any errors or issues – information can differ between the reporting agencies. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

7. Closing Out Old Accounts – It seems responsible to close out an old and rarely used account, but the length of your credit history is one of the factors determining your credit score. An old account that stays in good standing shows responsible credit behavior over time.

In addition, your credit utilization increases when you close old accounts. You still have the same amount of debt, but you’ve lowered your overall credit limit.

8. Fraudulent Use of Your Account – You spend enough already. You don’t need any help from identity thieves racking up fraudulent debt on your account – or worse, opening new accounts in your name and maxing them out before you know they exist.

The reason for a credit score drop lies somewhere in your credit report. Keep up with your credit report regularly and eliminate unpleasant credit score surprises. If your score drops in the future, you’ll know why – and if you haven’t done anything to warrant a drop, check your financial accounts and credit report immediately for any signs of fresh mistakes or fraud.

You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

Photo ©iStockphoto.com/goran13

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