Why Is My Credit Score Dropping?
Keeping up with your credit score is a task all adults have to get in the habit of doing. One little number can be either help or hurt you in many ways. But what is a credit score and why is it so important? To put it simply, a credit score is a number that is generated through your credit history and it determines how worthy you are of credit. If your number is high, that tells lenders how responsible you are with your credit. The more responsible you are with your credit, the more willing a lender will be to lend you money. The goal is to keep your credit score high, but there will be times when your credit score will decrease. You may be asking yourself “why is my credit score dropping?” Well, these are some explanations if your credit score has dropped.
Your Credit Utilization May Have Increased
Credit utilization, one of the things that affect credit score the most, means how much of the available credit you have, gets used. Basically, you have a credit limit on your cards and the closer you get to reaching that limit, the bigger your credit utilization is. That is important because it shows creditors how responsible you are with the credit given to you. Experts will say you should keep your utilization at or below 30% of your credit limit. If your utilization is getting close to your limit – even if you are paying it – that could actually make your credit drop. A higher utilization tells creditors that you might not be responsible with your credit.
You Have Late Or Missing Payments
If you miss a payment or pay it late, your credit score can take a big hit. Even if you are usually on top of your payments but you miss one, your credit score will still be heavily affected. It’s like this, your credit score is telling creditors that you are on top of things and are responsible; so if you have a bad credit score, that is telling creditors that you are less likely to be able to pay them back any money they lend to you. It shows them you can’t control your debt and you’ll be left drowning in your debt. So, if you have trouble remembering to pay your bills on time, set reminders on your phone or see if you can set up automatic payments so you’ll never miss another payment.
You Closed An Old Credit Card
As surprising as this may seem, if you close an old credit card account, your credit score could take a hit. But wait, that seems confusing. How can closing an old credit card make your credit score drop? Well, your credit history is one of the things used to calculate your credit score. So, if you are closing your oldest credit account, you are lowering how long you’ve been building up your credit. Also, if you close your old credit cards, your credit utilization increases while your card limit decreases. If you do want to close an old credit card, make sure to pay your balance to lessen the blow. If you need help paying your balance, consider getting an online title loan from Wisconsin for help.
You Have A Derogatory Mark On Your Credit Report
A derogatory mark can be things like bankruptcies, foreclosures, civil judgments, or tax liens. Any of these things on your credit history can really affect your credit score. In plenty of cases, these marks can stop you from reaching your goals like buying a home. If you do have one of these marks on your credit history, it is highly recommended that you take care of them as soon as you possibly can. Until then, you may not be able to take care of your other pressing finances.
You Applied For A New Loan Or Credit Card
Any time you apply for a loan or credit card, a check of your credit history will be conducted before a decision to approve or deny you is made. This check is called a hard inquiry and you have to approve it first. A hard inquiry will have an effect – albeit small you’re your credit score if done once in a while. Once you have multiple hard inquiries on your credit score, the damage starts to build up. These multiple hard inquiries will make it seem like you desperately need credit and unable to pay your current finances. This inability to pay your finances shows you will not be able to pay creditors and lenders back.
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.