(Newswire.net — March 25, 2020) —
You’ve paid your bills on time, yet your credit score plummeted! What gives?!
If you’re anything like the average American, then you know your credit score is important. Despite that, you don’t know about the inner workings of credit score calculations.
If your credit score dropped, you should know the reason why it dropped in the first place. Doing so will help you to improve your score or address the problem. Read on to learn four reasons why your score went down.
1. Applying for New Credit Lines
Credit inquiries account for about 10% of your credit score. Every time you apply for a new line of credit, the lender checks your score. That results in an inquiry, which lowers your score.
If your score dropped, then it could be because you recently applied for a new line of credit. Don’t fret, though. It should only impact your score for about a year.
To remedy this, try not to open too many accounts in a short amount of time. Only apply for credit that you need and know you will get approved for.
2. Your Credit to Debt Ratio Changed
Another factor that impacts your score is your credit to debt ratio. In an ideal situation, you only want to use about 30% of the credit you have available.
Your credit to debt ratio changes when:
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You use your credit card
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A lender lowered your credit limit
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You close an old credit card account
If possible, try to pay off some of your debt to maintain a better ratio. If you can, then you’ll see your score start to rise.
3. Your Unpaid Debt Moved to Collections
Have you been neglecting an overdue bill? If your account gets sent to a debt collector, then it will show up on your report. It will also make your score drop.
4. Bankruptcy Fell Off Your Credit Report
Have you filed bankruptcy in the past? When you’ve incurred more debt than you can pay off, most individuals opt to file for bankruptcy. There’s no shame in making such a decision, especially when the root cause is out of your control. Medical malpractice bankruptcy, for example, is very common in America.
During the first seven years after filing, your credit score will take a major hit. Your score, though, will only get compared to others who have filed for bankruptcy.
After seven years, your bankruptcy filing will fall off your score. That means your credit score will then get compared to everyone else’s. As a result, your score will take a hit and drop.
What To Do When Your Credit Score Dropped Unexpectedly
If your credit score dropped, then you’ll need to work even hard to get it back up again. Always try to pay your bills on time, and don’t seek out new credit until your score levels out.
Are you still struggling despite doing all the right things? You’re not alone! Consider reading our article on continuous increase in consumer debt and the reason behind it. We update our finance blog on a regular basis, so keep checking back here for more of our latest content.