Why Did Your Credit Score Drop Suddenly

Do you closely monitor your credit score, thinking let me check my credit score to know if there is any change?

As much as a hike in the score can excite you, a slight drop can be equally alarming. Even after adhering to all the guidelines, it’s the actions you overlooked that hurt your scores.

A credit score is a complex calculation involving many factors and information mentioned in your credit report.

It includes missed or delayed payments, change in the credit mix, applying for a new credit account, and closing an older one. And don’t miss the identity theft and inaccuracies that may cause a significant dip.

Here, we have explained a few reasons for a drop in your credit score.

Reasons for Your Low Credit Scores

1. Applied for Multiple Lines of Credit

The more credit accounts you apply for in a short duration, the more risk you represent to card issuers. Hence, they pull your credit report for inquiry.

This credit check makes up 10% of your score, so you will see the credit score going down for no reason. It remains on your report for two years but contributes to the score for the last 12 months.

Hence, you can recover the score in a year, provided that you make no mistake. Apply for credit cards you need and spread the applications over time, say three months or longer.

• Poor Payment Record

If you ever wonder why my credit score dropped suddenly, this may be a reason. Your credit payment history accounts for 35% of the credit score, making it a critical component.

A few days of delay won’t matter, but miss it for 30 days, and lenders will report it as delinquent. Your score can take a hit anywhere from 17 to 37 points.

For a good credit score, it can be 63 to 83 points. Miss it for 60 to 90 days, and you will see a drop from 27 to 47 points in case of a decent score and 113 to 133 for a good score.

• Maxed Out the Credit Card

How does your credit score go down by making a large purchase? Because running up your credit balance can increase the credit utilisation ratio, the second most important factor for the credit score.

The issuers report the balance shown on the last day of the billing cycle, so even if you pay on the due date, your score will drop. It indicates to lenders that you are not financially well-positioned to request new debt.

• Paid Off a Loan

It doesn’t make sense when you pay off your debt on time and still witness a drop in your credit score. Right?

You are left with one question ‘why is my credit score going down?’ Because it changes your credit mix, which makes up for 10% of your score.

Having a healthy mix of credit and installment loans shows your credibility to manage different debts. But don’t let this stop you from paying off your loan on time as you don’t want to pay unnecessary interest.

• Closed a Credit Card

Closing a credit card, especially the oldest one, increases the utilisation ratio and hurts the length of your credit history, both of which can affect your score.

Your credit history accounts for 15% of your score, so the longer it is, the higher your scores. Unless you cannot afford the annual fee or spending excessively, prefer to keep the credit card.

Conclusion

We know that seeing your credit score drop is not a great feeling. But fretting about it or complaining that the credit score went down for no reason won’t do any good. Instead, it’s time to take some action, identify the reasons and make efforts to recover the score.