{"id":38204,"date":"2023-01-17T11:31:03","date_gmt":"2023-01-17T19:31:03","guid":{"rendered":"https:\/\/financer.com\/?post_type=wiki&p=38204"},"modified":"2024-01-19T08:14:32","modified_gmt":"2024-01-19T16:14:32","slug":"why-did-my-credit-score-drop","status":"publish","type":"wiki","link":"https:\/\/financer.com\/personal-finance\/articles\/why-did-my-credit-score-drop\/","title":{"rendered":"Why Did My Credit Score Drop: 9 Reasons and How To Fix It"},"content":{"rendered":"\n
Your credit score<\/a> is important. It’s a number that potential lenders look at to decide whether or not to give you a loan. <\/p>\n\n\n\n A good credit score means you’re more likely to be approved for a loan with a lower interest rate. A bad credit score could mean you won’t be approved for a loan at all.<\/p>\n\n\n\n A drop in your credit score can be alarming, but there are some common reasons why it may have happened. <\/p>\n\n\n\n Here are some of the factors that can negatively impact your credit score:<\/p>\n\n\n\n A credit score is a number that represents the creditworthiness of an individual or business. It is used by lenders to determine whether to approve a loan application and what interest rate to offer.<\/p>\n\n\n A person’s credit score is based on their payment history, the amount owed, types of accounts held, recent applications for credit, and other factors.<\/p><\/div>\n\n\n A good credit score indicates that the individual has been responsible with their financial obligations and can be trusted to repay any new loans they may be approved for. <\/p>\n\n\n\n Lenders use this information to assess the risk involved in granting a loan, with those with higher scores being considered less risky than those with lower scores.<\/p>\n\n\n\n Read more: <\/strong>How To Improve Your Credit Score<\/a><\/p>\n\n\n\n Your payment history can have a significant impact on your credit score. For lenders, it is an important indicator of whether you have previously made timely payments on past credit accounts or loans.<\/p>\n\n\n\n If you have a good payment history, it will help improve your credit scores by showing that you are responsible with money and can be trusted to make timely payments in the future as well. <\/p>\n\n\n\n Conversely, late payments or other negative items on your credit report can cause significant drops in your scores.<\/p>\n\n\n\n The amount owed on a credit card can have a significant impact on a person’s credit score. A high balance can indicate financial stress and difficulty managing money, both of which negatively impact credit scores.<\/p>\n\n\n\n For those with good credit scores, the effect of high amounts owed is minimal. However, those with lower scores may find it difficult to get approved for new loans or lines of credit due to their poor financial standing. <\/p>\n\n\n\n Additionally, those with higher balances are likely to pay more in interest each month which further impacts their finances and potentially increases their debt over time.<\/p>\n\n\n\n Applying for a new loan<\/a>, credit card or mortgage will likely lead to a hard credit inquiry, also known as a credit check.<\/p>\n\n\n\n The more credit applications you make in one go, the more hard inquiries you will have on your credit report. This can have an impact on your score as recent credit is considered a low impact on the VantageScore\u00ae 3.0 model.<\/p>\n\n\n\n When you apply for a new form of credit, such as a loan, credit card, or mortgage, it will likely result in a hard credit inquiry on your report.<\/p>\n\n\n\n This is because the bank, financial institution, or mortgage lender has to assess your credibility and this involves a credit check.<\/p>\n\n\n\n This can have an adverse effect on your credit score as it is considered a low impact on the VantageScore\u00ae 3.0 model. <\/p>\n\n\n\n Having four or five hard inquiries over a short period of time can cause lenders to view you negatively and make them less likely to approve your application.<\/p>\n\n\n\n There are two types of credit that affect a credit score:<\/p>\n\n\n\n The longer you’ve had credit accounts open and in good standing, the more creditworthy you appear to lenders.<\/p>\n\n\n\n This can lead to a higher credit score since it indicates that you have a longer history of managing debt successfully and are likely to continue doing so in the future. <\/p>\n\n\n\n Closing an account that has been open for a long time could potentially impact this factor, resulting in a lower score.<\/p>\n\n\n\n When applying for a new form of credit, such as a credit card, a hard inquiry is placed on your credit report. One or two hard inquiries usually aren’t enough to cause alarm, but having four or five can have an adverse effect on your score. <\/p>\n\n\n\n The damage from the hard inquiries adds up and may spook other lenders, which could lead to lower scores in the future.<\/p>\n\n\n\n Social media scouring is the process of reviewing a person’s social media accounts in order to determine their creditworthiness.<\/p>\n\n\n\n Scouring social media can have a negative effect on a person’s credit score as it can reveal information about their spending habits, relationships, and other personal details that may be used against them in the scoring process. <\/p>\n\n\n\n Additionally, inaccurate or misleading information found on social media can lead to incorrect decisions about an individual’s creditworthiness.<\/p>\n\n\n\n Liability protection affects a credit score by reducing the risk of defaulting on a loan or debt. <\/p>\n\n\n\n Having liability protection can show creditors that you are financially responsible and able to repay your debts, which can positively affect your credit score.<\/p>\n\n\n\n Additionally, having liability protection can reduce the amount of money lenders may require as collateral in order to issue a loan or provide credit. <\/p>\n\n\n\n This helps improve your chances of obtaining favorable terms for loans or credit cards with lower interest rates and better repayment plans.<\/p>\n\n\n\n A high credit utilization ratio (CUR) can have a negative impact on your credit score as it indicates that you might pose a financial risk to credit card companies. <\/p>\n\n\n\n High CURs are often associated with low credit scores due to the increased risk of defaulting on payments or becoming unable to repay debts quickly.<\/p>\n\n\n\n As a result, your credit score may be negatively impacted since it will be reported as an indication that you may not be able to manage your finances properly. <\/p>\n\n\n\n Additionally, having high balances on your credit cards can incur additional fees such as interest charges which further decreases your overall score.<\/p>\n\n\n\n Keep your credit utilization ratio low to avoid a negative dent in your credit report.<\/p>\n\n\n\n When you apply for a loan or other type of credit, an inquiry will show up on your credit report. <\/p>\n\n\n\n Most inquiries are simply soft searches and won’t have a huge impact on your credit score (in the range of 3-7 points), but some hard inquiries (such as car loans<\/a>, student loans<\/a>, or mortgages<\/a>) can be grouped together, making similar inquiries in a short time period not count separately. <\/p>\n\n\n\n The number of inquiries on your report can cause your credit score to drop due to the potential damage from hard inquiries over time. <\/p>\n\n\n\n Additionally, multiple applications for different forms of credit in a short period of time can make lenders wary about approving further applications from you.<\/p>\n\n\n\n Making late payments on your credit score can have a negative impact. It can decrease your credit score, as well as incur late fees and interest charges.<\/p>\n\n\n\n The consequences of making late payments on your credit score include lower financial credibility, loss of potential loan opportunities, and higher costs associated with missed or late payments. <\/p>\n\n\n\n Additionally, the information related to these missed or late payments may remain on your credit report for up to seven years.<\/p>\n\n\n\n Closing or paying off certain accounts can have a negative impact on your credit score. This is because the longer you keep your accounts in good standing and open, the better it is for your credit score.<\/p>\n\n\n\n When you close an account, the average age of your remaining accounts decreases which can negatively impact your score. <\/p>\n\n\n\n Additionally, closing an account may also reduce or eliminate any available credit lines which could also affect your score.<\/p>\n\n\n\n When available credit increases, consumers have more access to funds and are able to purchase more goods and services than they previously were able to.<\/p>\n\n\n\n This can lead to an increase in consumer spending as well as an increase in debt levels for those who take advantage of the increased availability of credit cards.<\/p>\n\n\n\n Read More: How Fast Can a Car Loan <\/a>R<\/a>a<\/a>i<\/a>s<\/a>e<\/a> My Credit Score?<\/a><\/strong><\/p>\n\n\n\n Applying for a credit card can have a positive effect on a person’s credit score. By having a credit card<\/a>, the individual is demonstrating their ability to manage debt responsibly and pay off their bills on time. <\/p>\n\n\n\n Additionally, having more than one line of credit can help improve your overall score as it shows that you have access to multiple sources of funding. <\/p>\n\n\n\n However, applying for too many cards in a short period of time or using them excessively can negatively impact your score as it indicates that you are taking on too much debt or may not be able to manage it properly.<\/p>\n\n\n\n Taking out a large installment loan<\/a> such as a car loan<\/a>, student loan, or mortgage can have a positive effect on your credit score. <\/p>\n\n\n\n This is because these types of loans are considered installment debts and have set repayment periods, which means they won’t impact your score as heavily as revolving debts like credit cards and lines of credit.<\/p>\n\n\n\n As a result, taking out an installment loan can help improve your credit mix by providing more balance between installment loans and revolving debts in your portfolio. <\/p>\n\n\n\n This will lead to an increase in overall credit scores since lenders prefer to see both types of debt represented in a borrower’s portfolio.<\/p>\n\n\n\n Having an unsecured credit line can have a positive impact on your credit score, as long as you are able to make timely payments on your bill. It shows that you are responsible with money and can manage a loan.<\/p>\n\n\n\n Having an unsecured credit line can help improve your credit score by showing that you are capable of managing a loan and making timely payments on it. <\/p>\n\n\n\n\n
Let’s look closer at the different factors that can impact your credit, nine reasons why your credit score may have dropped, and what you can do about it.<\/p>\n\n\n\nWhat Is a Credit Score?<\/h2>\n\n\n\n
What Factors Affect a Credit Score?<\/h2>\n\n\n\n
1. Payment History<\/h3>\n\n\n\n
2. Amounts Owed<\/h3>\n\n\n\n
3. Number of Credit Applications<\/h3>\n\n\n\n
4. New Credit Inquiries<\/h3>\n\n\n\n
5. Types of Credit Used<\/h3>\n\n\n\n
\n
6. Age of Credit History<\/h3>\n\n\n\n
7. Credit Card Inquiries<\/h3>\n\n\n\n
8. Social Media Scouring<\/h3>\n\n\n\n
9. Liability Protection<\/h3>\n\n\n\n
9 Reasons Why Your Credit Score Dropped<\/h2>\n\n\n\n
1. High Credit Utilization Ratio<\/h3>\n\n\n\n
2. Number Of Inquiries On Credit Reports<\/h3>\n\n\n\n
3. Late Payments<\/h3>\n\n\n\n
4. Closed Accounts<\/h3>\n\n\n\n
5. Increases In Available Credit<\/h3>\n\n\n\n
6. Credit Card Applications<\/h3>\n\n\n\n
7. Large Installment Loans<\/h3>\n\n\n\n
8. Unsecured Credit Lines<\/h3>\n\n\n\n