If you like to keep in control of your credit score and have registered for timely notifications, then you already know how dynamic a credit score can be. On one hand, you’re happy about an increase, on the other you’re challenged about a decrease.
Obviously, calculation of a credit score is complex however it’s best suited in times of loan application. Also when the score goes down, it’s difficult to figure the reasons. A credit score is found out based on the findings within your credit report. So precisely when your credit information changes, it can be traced back to your credit report & financial transactions. Every change can be registered as substantial and have a major impact on the credit score.
Below listed are the 7 reasons why your credit score has gone down:
Your payments have a high impact on the credit score. If your loan payments are late beyond 30 days, then it clearly shows in your credit score. So whenever a missed/late payment gets reported, it affects your credit score & results in a fall.
Your credit limit & credit utilization ratio is another important factor that affects your credit score. It may seem bizarre that even a big item purchase can lead to a credit score drop. This is despite the fact that it’s just once a month and the balance is paid in full on the due date.
3. Your Unpaid Accounts Were Sent to Collection
To save your credit score, it’s necessary to pay up all your loan accounts & otherwise. If you lag behind on the payments front in relevance to non-credit accounts (like utility bills), then defaulted account could be sent to a collection agency and shown on your credit report. And when the collection reflects on your credit report, it leads to an automatic drop in the credit score.
4. The Last Collection pushed down the Credit Report
When you’re calculating credit scores, the algorithm models put individuals into separate buckets known as scorecards. A comprehensive check is conducted on the credit profile of different people as mentioned in the credit report. You could have been spiking high on the scorecard a while back as per the information reported on the credit card, and then may again fall at the bottom you may have been at the top of one scorecard with the collection on your credit report, you may fall to the bottom of the scorecard when negative information strikes.
5. A new credit application has been initiated
Every time you apply for a new credit application, it adds as an inquiry to the credit score. All inquiries build up 10% of your credit score which is why a credit application affects your credit score. The inquiries remain on the credit report for at least 2 years, so effectively they are factored for 1 year in your credit score. Just after one inquiry, your credit score goes up and recuperates in the next 12 months, apart from the other losses.
6. You’ve reduced any one of your credit limits
A low credit limit is as good as an expensive purchase. When you have a balance on your credit card but a low limit, the credit utilization goes up, and credit score dips. You may not be able to control your credit card limit if the issuer wants to do the same. However, if that happens then paying your full balance can boost your credit utilization rate & score.
There’s no denial of the fact that closing a credit card can affect your credit score. The same thing happens when you cancel your credit card. This could have been the case because the lender chooses to close the account.