Why did my credit score drop?
If your score recently just dropped, you’re probably asking yourself why. The thing is, many factors make up a credit score, and there are even more reasons it dropped.
Keep reading to find out what caused your score to drop and learn how to repair it!
Why Did My Credit Score Drop? Here’s the Answer!
1. Missed or Late Payment
Missing a payment deadline is a common mistake. However, few people realize how drastically it can impact their score.
Payment history is the most heavily weighted item on your report, making up 35% of your overall score. Therefore, if you miss just one payment on a credit card or loan, it could drop your score by as much as 75 points!
More specifically, if you are more than thirty days past due on a payment, it will be reported to at least one of the three credit bureaus and cause a drop in your score. If it’s sixty to ninety days late, your score will likely drop even more.
If your payment is more than 180 days, the lender can send your debt to a collections agency. Collections show up on your report and can drop your score by as much as 100 points. Moreover, collections typically stay on your report for seven years.
In the end, missing payments drastically harms your score, and maybe the reason why your score dropped.
2. High Credit Utilization
What is credit utilization?
Credit utilization is the ratio between the amount of money on your credit card balance divided by your total credit card limit. In other words, the more credit you spend, the higher your credit utilization.
When analyzing how to use a credit card, it’s a good rule of thumb to keep your credit utilization under 30%.
For example, if you have a credit limit of $10,000, then don’t use your credit card to spend more than $3,000. Always keep your credit utilization under 30%.
What happens when you spend more than 30% of your credit limit?
The thing is, your credit utilization, or amounts owed, makes up about 30% of your overall credit score. If you have recently charged a large amount of credit to your card, this may be the reason your score has dropped.
Moreover, if you tend to spend more than this, lenders may see you as someone who is overextended financially and isn’t in a great place to take on new debt. This can make it difficult to qualify for loans.
If you believe high credit utilization may be the reason why your score has dropped, consider spending as little as 10% of your credit utilization in the coming months. This way, you can keep your credit card balances manageable and improve your score.
3. Lowered Credit Limit
Perhaps you haven’t utilized more than 30% of your credit. However, credit utilization may still be the culprit! Let me explain.
Let’s take the example from above. If your credit limit changes from $10,000 to $6,000 and you spent $3,000, your credit utilization ratio is no longer 30%, but 50%! In this case, high credit utilization may not be your fault.
If you think this may be why your score has dropped, it’s a good idea to contact your credit company to check if your limit has been lowered. This way, you can be sure to stay on top of your credit utilization ratio.
4. Errors on Your Report
According to the Federal Trade Commission, one in every five consumers have at least one error on one of their reports. Errors could be the result of someone simply recording inaccurate information, or it could be something more serious like identity fraud.
Therefore, it’s a good idea to take a look at your credit reports and check for mistakes. If you believe there might be an error on your report, you’ll want to collect as much documentation as you can to dispute the error with all three bureaus. The credit bureau must prove that the item on your report is true and if they can’t, they must remove it.
If you aren’t sure how to find the error on your report or how to dispute the errors, it may be a good idea to contact a credit repair agency. These agencies work hard to fix any errors on your report and even remove other negative items, such as the ones listed in this article.
5. Loan, Mortgage, or Credit Card Application
Have you recently applied for a loan or filled out a credit card application?
Each time you apply for a loan, mortgage, or credit card application, the lender will request a copy of your credit score. This can damage your score.
Inquiries about your score can impact your score and stay on your report for up to two years.
If you’ve applied for more than one credit card application, all of those hard inquiries can hurt your score.
It’s a good idea to keep old credit cards for as long as possible rather than apply for new ones. Why? The length of your average credit history makes up 15% of your score. While old credit accounts can help your score, new applications may harm it.
6. Missed Payment on a Co-Signed Loan
Have you accurately made all your payments on time, been super responsible with your credit, and have no errors in your report?
The reason your credit dropped may not be your fault.
If you have ever co-signed a loan, your credit score can be affected by the other person. For instance, if the person you co-signed for missed a payment, it will affect your score just as if you missed the payment, even though it was the person you co-signed for who missed it.
If possible, contact the person you co-signed for to see if that could be the reason why your score has dropped.
If you are thinking about co-signing for someone, make sure they can make all the payments on time. Your score won’t be impacted just by co-signing. However, you are in charge of the full amount. So if they miss even one payment, your score could suffer.
7. Paid off a Loan
Have you recently paid off a loan or a credit account?
Remember that your credit history makes up 15% of your score. So if you pay off a loan, that means you have one less credit account active.
While paying off a loan is a huge achievement, know that your score could suffer a small drop because of it!
Do You Need Credit Repair Help?
If you are asking yourself, “Why did my credit score drop?” know that there are many ways you can improve your score fast.
If you need help disputing errors on your report, removing negative items, or you need help with other credit-related issues, a qualified credit repair agency can help!
Go Clean Credit is a passionate credit repair agency that is dedicated to helping you achieve financial success. They know that restoring your credit score can feel overwhelming, and Go Clean Credit is there to support you every step of the way. They will help you understand how to read your credit report, and then they will dispute any negative items and errors that are on it.
In the end, Go Clean Credit wants you to feel financially secure to take on the future. Do you want to purchase a house, a car, or become financially more secure? This top credit repair agency wants to help you succeed!
To learn more about how Go Clean Credit can improve your credit score, give them a call at 1-866-991-4885 for a free consultation or fill out a contact form today!