Why Did My Credit Score Go Down?

5 reasons why your credit score went down.

When it comes to your financial status, there are many fluctuations that can occur. It's not uncommon and it's okay (that is especially if you know how to deal with them). If you notice a drop in your credit score, for example, there is no need to worry – simply because there will typically be an explanation behind why this has happened.

Just like when we apply for a loan or we're trying to take out a mortgage on a new house, sometimes our credit score will decrease. Here are some reasons why your credit score has gone down:

You have missed a credit payment

The most important part of your credit score is whether or not you pay on time. Payment history makes up 35% of your overall score and missing or being late for even one payment can bring it down if you miss three payments in a short period of time (about less than 1 year).

Closing a credit card

You might think that closing an old credit card account will immediately improve your credit score. But, when you close a credit card, the length of your credit history goes down. On average, 1 year of good payment history is equal to about 10 points on your score. Should you want to keep this particular account going but can no longer afford the high yearly fees, find a cheaper alternative to continue building up your credit score while keeping your positive payment history intact.

Making a large credit card purchase

Have you maxed out your credit card for a large purchase, like a TV or some furniture? Depending on your current limit, when you make large purchases, your credit utilization ratio will increase. This ratio is an important factor contributing to credit score, and the higher it is the less attractive it looks to lenders. A high credit utilization ratio is calculated based on your current credit balances and credit limits. If your ratio is too high, it is clear that you are not able to take on more debt.

Recently applying for a new credit card, loan or bond

When your credit report is accessed through review services or through credit card offers, it can be seen as multiple applications for credit in a short period of time. This will affect your score, but fortunately score drops can be minimized if you rest easy with the knowledge that multiple inquiries in a short period of time will not have a lasting negative impact overall.

A credit limit has been lowered

If your credit limit is decreased or raised for some reason, it has the same effect as having used up all of your available cash on one of your credit cards. So, even if you do not use more than 75% of one credit card, but max out the other by using the entire amount, your overall money management score suffers greatly.

If you have a good credit score, it is important not to ignore what can happen to your score if you have a slip up with your credit. In the event that your score goes down, it is important to address the issue as soon as possible. If you would like to learn more about credit scores, get in touch with Credit Health.