Why has my credit rating dropped? 9 possible reasons
When your credit score unexpectedly takes a downward turn, you may feel angry or frustrated. Credit scores fluctuate, and a few points up or down isn’t a big deal – but a downward trend or a big drop is.
Here is a list of things that could be causing your credit score to drop, and tips on how to correct them:
1. You missed a payment
It happens. Maybe you have statements online and deleted the email notice, thinking it was another ad. Or it was a new credit card and the first bill was hidden in a flyer in your mail; you weren’t used to paying this bill, so you didn’t notice it was missing. And you paid late.
The fix: Pay it. Once you’re sure the money has reached the creditor, call and ask if you could be forgiven once. There is no guarantee it will work, but it can’t hurt to ask. If the creditor agrees not to report your late payment to the credit bureaus, your credit reports will not carry a negative rating for seven years.
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2. Your credit card balance is higher than usual
If you had unexpected expenses and put them on one or more credit cards, your credit score could drop. Indeed, one of the main credit rating factors is “use of creditOr the amount of your credit limit that you are using. Usually you want to use 30% or less of the credit limit on any card, and the lower the better for your score. If your credit usage goes up – even if it’s still below 30% – your score could drop.
The fix: Pay off high balances as soon as possible and start using a small portion of your available credit again. Or, you may consider requesting a higher credit limit. Ask your transmitter if this can be done without “difficult investigationTo your credit as these also cost a few points (see more on this below).
Here is an overview of the factors that determine your credit score, in order of importance.
3. There is an error in your credit report
Your credit score is based on data from your credit reports. Credit report errors like a transposed number, a payment flagged to the wrong account, or a payment flagged late when it was not can hurt your score.
The fix: Check your credit reports for errors and gather the documentation you need dispute errors. You can dispute online or by mail, and you will need to go through the process with each credit bureau individually.
Frequently Asked Questions
4. You are the victim of identity theft
A significant and unexplained drop in your credit score may be the first identity theft sign. When checking your credit reports, look for warning signs like addresses you’ve never lived in or accounts that seem unfamiliar to you. You can clean up the mess, but the sooner you find out it’s there, the easier the job.
The fix: Go to identitytheft.gov and file a report. You will need this report to dispute the information on your credit reports. Follow up by re-checking your credit reports in 30 days to make sure the corrections have been made. Consider freeze your credit or at least by adding a Fraud alert to protect you in the future.
5. Someone else has used your credit card account
Whether your 10 year old took it out of a desk drawer and created an online gaming account, or your credit card was cloned and used by a stranger, someone has racked up a big balance and you had no idea.
The fix: Call your credit card issuer. In the case of a foreigner using your card, you will get a new card and will not be responsible for the charges. A member of your household who uses the card without your knowledge is more of a family problem. Consider setting up alerts to notify you when the card is in use.
6. You have co-signed a loan or credit card application
A friend or relative needed to use your good credit, and you agreed. Just signing up doesn’t hurt your credit. But if the person you co-signed with has a late payment or a large credit card balance, your score could suffer.
The fix: Have your statements sent to your home or make sure you have access to the account online so you can monitor and fix issues quickly. You are about to pay the full amount, so it may be worth making a payment yourself to avoid a negative rating on your credit. If it’s a credit card, you can pay it off and close it to preserve your credit score, but first you might want to talk to your friend or relative and see if there’s any approach. less drastic would work.
7. You asked for a lot of credit
Getting approved for a loan or credit card, especially if it’s the first, is pretty cool. And so it may seem logical to go ahead and use your good credit to get other credit products. But “difficult requests– when a lender or card issuer examines your credit in deciding whether to approve you – can cause your credit to temporarily drop slightly. Several in a short period of time, say six months, can cause a very large bump.
The fix: Time. Stop applying for credit until your score rebounds. Then space the applications every six months or so. And only apply for the credit products you are almost certain that you will be approved for, because losing a few points and being refused entails an additional sting.
8. You have closed an old credit card
We understood. Once you got rid of crippling credit card debt, you swore “never again” and closed those credit cards. Or maybe a card’s perks weren’t competitive anymore, or you just never used it, so you closed it. But losing that card’s credit limit means your overall credit limit has gone down, so your credit usage has gone up. It may cost you a few points.
And if it was one of your old cards, you took another hit, because the the age of your credit also affects your score. However, this is not as important a factor as paying on time or using the credit.
The fix: Think carefully before closing old cards. If your credit card issuer offers a better card, see if you can change.
9. You have repaid a loan
Paying off a loan is successful, but it can also leave you with a lower credit rating. It’s because when you repay a loan, you have one less credit account.
The fix: Keep your other accounts active, reduce your credit usage, and pay on time. Your credit will continue to benefit as your credit history lengthens and is filled with positive information.