Seeing a credit score dropped always hurts the most. But if you pay attention to it and try to identify the root cause, you can quickly get back on track. It can drop due to multiple known and unknown reasons. So, always take steps with full attention. If not, you will end up losing.
If you think that your credit score dropped for no reason, you are wrong. There are numerous reasons like you missed a payment, a significant change in credit mix, increase in credit utilization rate, closing older accounts, etc.
The credit score helps the lenders know your exact financial situation; therefore, you must pay attention to it. In this article, we are going to cover some known reasons for a credit drop. So, if you are also facing such situations, then this article is worth reading for you.
Credit Score Dropped for No Reason: Overview
If you are not from those who regularly monitor their credit score, that is a bad practice. Also, if you don’t have a good score and want to increase it, you must check your daily progress. Apart from these situations, you may encounter a problem of credit drop without any reason.
In such a case, you need to dig into the problem to find a better solution without losing a further credit score. You should know that a good credit score can give you numerous benefits. So, try to maintain it and don’t lose it unnecessarily.
Reasons for Dropped Credit Score
There are tons of reasons for a dropped credit score. Below mentioned are the top 8 reasons. If you are from those who always try to maintain a good score, then you must go through these points. They will help you in getting a good score. Let’sLet’s have a look at them.
Too Many Credit Cards
If you are applying for a new credit card, the card issuers will first check your previous credit report. With this, they will cross-check the risk you pose from the last line of credit. It is termed hard pull or hard inquiry that lowers your credit score by subtracting a few distinctions.
The hard pull will stay on the credit report for almost two years. But the Fair Isaac Corporation (used by most lenders) considers last year’s inquiries while calculating your credit score. It wouldn’t be wrong to say that hard pull inquiries are not always harmful to credit reports.
If you are applying for a new credit card, it is the first golden step to help you build credit for the future. So, if you will pay on time and clear your dues within the due date, they will increase your credit score.
But before applying for a new credit card, you need to check whether you pass the prequalification offers and preapprovals from the issuers or not. By doing this, you can decrease the value of credit drop in the hard inquiry.
Not Paying Your Bills On Time
What makes your credit score drop? It is a widely searched term on the internet. Unpaid credit card bills are among the leading causes of this problem. Yes, you heard that right. Most people forget to pay their credit bills on time, and in return, they suffer from the consequences.
The late payments can cause a drop of 30, 40, 50 points, or more, depending upon the late days. So, if you are purchasing something from your card and willing to keep yourself away from the surcharges, then pay bills on time.
Missing A Payment or Two
Missing a payment is also one of the main reasons your credit score is dropping day by day. Graffin said that if you cannot pay your debt on a fixed date, it will affect your credit score badly. So, think twice before getting late.
If your payment is 30 days overdue, it will lower your credit score by up to 80 points and then another 50 points after three months. It will be very significant if you have the option of installment payment. But don’t be late in paying back.
Using Too Much of Your Available Credit
If you are thinking, why did my credit score drop? Then using too much of your available credit could also be the main reason. Credit utilization is the difference between how much credit you have used and how much you have credit available. This ratio should remain under 30%.
Keeping only one card in your pocket can also suffer you with the credit card score drop. If you are making timely payments from your card but using 90% of the total amount, you will also suffer. So, the best way is to open a new account and split your spending amount on both cards.
On the other hand, if you don’t keep the utilization limit low on all cards, both the credit score will decrease, and you will see a significant drop in your overall credit score. Always think wisely before taking any step.
A Recent Bankruptcy Filing
Chapter 7 and 13 bankruptcy have a direct link with your credit score. Why shouldn’t it be? If there is a declaration of bankruptcy, then for sure the credit score will be down, said Griffin. With this, you are telling your creditors that you are at significant credit risk.
Sometimes, it will be clearly said in the declaration that you won’t payback for the things. Therefore, they drop your credit score. Once declared bankrupt, there will be a drop of more than 200 credit scores. In short, you won’t be able to get a credit card and enjoy its perks.
After getting bankrupt, if you want to increase your score, you need a lot of effort and time. But don’t worry. After seven years, the bankruptcy tag will be no more with your credit report, and you can apply for financial products with a credit card.
How much does your credit score drop when you buy a house? It is also a widely searched term these days. Its answer is more than 15 points. So, try to think twice. If you are going to go bankrupt shortly, then clear up all your dues with the available amount so you can get rid of it.
Applying For New Lines of Credit When You Already Have Debt
There will be a significant decrease in your credit score if you apply for the new lines of credit when you already have debt in your name. Yes, it is true. The credit score will drop according to the quantity of your debt and overall credit history.
According to Graffin, it is one of the most popular reasons for the credit drop. With a high credit score, you can easily pass your mortgage loan and can enjoy other benefits. But when you apply for a new loan, there will be a sudden drop in the credit score.
The sudden drop will be due to the hard credit check. Apart from this, if there will be a significant score decrease in the account after applying for a new line of credit, then you need to check other factors, too, as said by Graffin.
Missing Deadlines On Loan Payments Consistently
Missing deadlines on the loan payments consistently are also one of the significant reasons for credit drop. Payment history is one of the most vital things that affect the credit score directly.
According to FICO, your credit score will drop by 17-37 points on 30 days of late payment. It can also drop up to 133 points depending upon the late payment time. So, always think twice before getting late.
The first drawback of paying late is that you won’t get an increment in your credit score. The second drawback is, you will witness a decrease in credit score. Yes, both these things at the same time.
When it comes to building up the credit score, then you may face many hurdles. The bounce-back procedure might take a great credit card history and payment behavior of the future. In short, on-time payments is the only procedure that can increase the score.
Closed Credit Card
If you are thinking of closing your old credit card, then get ready for a score drop. Closing the most senior credit card also decreases the overall account age, impacting the credit score. Due to these reasons, the experts recommend building up a credit history from a young age.
In contrast, if you are paying for a credit card that is no longer in use, you can survive a drop in your credit score. You can also talk to the issuer of the card about the downgrade. It will also help lower your fee, and there will be less drop in the credit score. So, it is a better option.
What Is A Good Credit Score
A good credit score is not hard to maintain. Just pay your bills on time and don’t go for the extra loan. By this, you can quickly get a good credit score. The credit scores between 690 to 719 points are good. If your score is above 720, then it will be in an excellent state.
What Is A Bad Credit Score
If you don’t focus on paying your dues on time, your credit score will decrease. Therefore, don’t ever try to miss a due date. Otherwise, it will impact very severely on the score. A credit score under 629 points is a bad score. Always maintain your score above 630.
Tips to Improve Credit Score
After reading the root causes of the credit score drop, here are some tips that you can apply to maintain or increase your credit score.
Pay Your Bills On Time
Always pay your bills on time. Paying before the due date will help you earn points, and there won’t be any drop in the credit score.
Minimize Overall Debt
Don’t ever apply for a new loan if you are already in debt. Try to clear your debt amount first before applying for a new one. It will increase your credit score and minimize overall debt.
Monitor Credit Regularly
The best thing you can do to increase your credit score is to monitor credit amounts regularly. This way, you can quickly increase points whenever there is a drop in score.
Avoid Unnecessary Credit Cards
Don’t ever go with unnecessary credit cards. They will only result in lowering your credit down by hard inquiry. Avoid applying for a new one if you are already doing great.
Minimize your spendings in daily life if you have a bad credit score. Focus on paying on time, don’t take extra loans, and open new accounts. It will increase your score.
Frequently Asked Questions (FAQs)
Why did my credit score go down when nothing changed?
There is only one reason if your credit score is going down without any reason. Your bank might have increased or decreased the total credit limit. Contact concerning authorities in this case.
How can I quickly raise my credit score?
You can raise your credit score after identifying the root cause of the credit score drop. Start implementing the solutions that will eventually result in the bounce-back of credit score. In short, identifying the root cause is the main thing.
How can I raise my credit score by 100 points?
You can raise your credit score by 100 points by paying the bills on time. Apart from this, you don’t need to open a new account and avoid bankruptcy.
Can I buy a house with a 519 credit score?
Most of the FHA offers start from 580 credit points. If you have 580 points in your account, you can apply for it by taking down 3.5%.
What boosts your credit score the most?
Numerous points boost your credit score. Pay your bills on time, don’t go for the new credit card, don’t go for bankruptcy, and don’t use the maximum credit limit. All these things will increase your credit score.
So, if you thought that your credit score dropped for no reason, now you have understood the actual causes. Try to avoid all the points mentioned above for a good credit score. Otherwise, you can also become bankrupt and can’t take any loan for the financial products.