The credit score is a complex calculation. Trying to pinpoint the possible reason for a sudden drop can be futile if you make timely payments every month. A credit score is often triggered by a change to the figures in your credit report. The only way to find out why your rating dropped significantly is by pulling your credit report. It doesn’t have to reflect big numbers for your credit score to fall.
You can pinpoint all current negative payments that may have prompted your score drop. Note that balance changes cause the most common reasons for a significant decline.
Credit scores are numbers that use data in your credit reports to calculate the odds of you defaulting on your credit or the late payment of your bills.
Here’s the thing, you probably have several credit scores that fluctuate all the time as the data in your credit report changes. There are two central scoring systems in America — FICO and VantageScore. Both provide multiple variations. To be on the safe side, compare your credit scores from a single source rather than using different scores from multiple credit bureaus.
The most obvious reason for a cause of credit score drop is either: a late payment or an account that delegated to debt collectors.
We have compiled an informative list to help guide you on eight possible reasons why your credit score suddenly dropped. Here we go:
Table of Contents
- 1. You made a big Purchase
- 2. Your Payment is past the 30-Day Deadline.
- 3. Your Unpaid Credit Was Sent to Collection
- 4. You Made a New Credit Card Application
- 5. Lowered Credit Limit
- 6. Your Collective Score Card Caused a Drop in Your Credit Score
- 7. A Canceled or Closed Credit Card
- 8. Bankruptcy Is Terrible News for Your Credit Report
- How to maintain a good credit score
1. You made a big Purchase
Have you ever done impulse shopping, and you found yourself making expensive purchases? These are things you probably do not need, but you bought anyway. Make good use of your credit utilization ratio because unplanned expenses made in a month could significantly lower your credit score.
The score drastically drops because card issuers prepare monthly statements and report the credit card balance on the last day of the billing cycle. So when you receive your credit card statement, the balance thereon on is often the same amount that reflects on your credit report. To rectify the effect of high debt, you can promptly pay the balance and avoid more credit card purchases.
2. Your Payment is past the 30-Day Deadline.
Late payments attract a negative impact on your credit score. Frequent late card and loan payments made past the 30-day due are reported to the credit bureaus, subsequently posting a drop to your credit score. To avoid this inconvenience, ensure you make timely payments to keep off being blacklisted.
3. Your Unpaid Credit Was Sent to Collection
To shield your credit score, plan to pay all of your bills, not only your credit cards but also your loans, phone bills, and any other financial obligation. If you fall behind on any of the debt payments of the non-credit accounts, the debt balance of your defaulted accounts is sent to collection agencies and an update made on your credit report. If you get the warnings of a pending debt, better pay up promptly because you can be sure the amount will negatively impact your credit score. It will most certainly reflect on your credit report, consequently causing a drop in your credit score.
4. You Made a New Credit Card Application
Any time you apply for a new credit card, loan, or any other line of credit, an inquiry reflects in your credit report. Credit inquiries total up to 10 percent of your credit score. Applying for new credit can negatively affect your credit score, and although inquiries reflect on your credit report for two years, they’re used to rate your credit score for one year. Keep off the credit inquiries to restore your score within the 12-month window period.
5. Lowered Credit Limit
This is another factor you may not be able to control. A lower credit may cause your credit score to drop in the same way it drops when you make an expensive purchase. In this case, your credit score goes down until you pay the amount owed to improve the card limit and credit utilization.
6. Your Collective Score Card Caused a Drop in Your Credit Score
When calculating credit scores, credit counting models calculate data scores based on clustered groups of individuals, known as scorecards. Your credit profile is compared to other people in your scorecard to work out your credit score. According to this algorithm, you may get a good rating with the collection on your credit report, and other times you may see a significant drop in your credit score if you neglect to pay any of your bills on time. Unfortunately, this negative data reflects on your credit report, and it’s outside your control. To regulate this anomaly, keep paying your bills on time to fix your credit score.
7. A Canceled or Closed Credit Card
Closing a credit card is a bad idea, even if you’re doing it for all the right reasons. It will hurt your credit score, more so, if it has unpaid balances or more available credit than any other credit card you own. Credit card issuers cancel cards with bad ratings, and that also significantly impacts your credit score. If you have only one credit card and have it closed or canceled, your score takes a dip.
8. Bankruptcy Is Terrible News for Your Credit Report
Credit score metrics use a large pool of credit cardholders to determine your score – kind of like a ranking. Now, when you file for bankruptcy, that event goes into your credit report, and it sticks on you for seven years. You’ll be stuck with a lousy score the entire duration (7 years) because your score now compares to people with healthy accounts.
How to maintain a good credit score
- Enquire and track your score from a single source. Do not use two or more bureaus to compare your credit scores.
- Pay your bills on time. Monitor your credit utilization. Use your credit limit wisely; keep it under 30% less your available credit.
- Don’t worry about the changes in your score. Your monthly statement changes every 30 days, and so does your score.
Your payment history and your credit utilization are the essential factors that impact your credit score—the fewer credit limits you utilize, the better. Closing accounts and paying off loans can also have your score drop, at least temporarily.
The unfortunate bit about credit scores is that you’re compared with people with the same negative scores like yours. If your score improves and you move up to another group of people with better credit scores than yours, you’re in the red.
To maintain a good score report, follow the tips given in this article, and you’ll be fine. Please share your thoughts and experiences with us in the comments section. We’d love to hear from you.