Here are some of the most common reasons why your credit score may have decreased, and what you can do to fix it.
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Reasons Why Your Credit Score May Have Decreased
A credit score is a three-digit number that’s used by lenders to decide whether to give you a loan and, if so, at what interest rate. A high credit score means you’re a low-risk borrower, which could lead to a lower interest rate on a loan. A low credit score could lead to a higher interest rate and could mean you won’t be approved for a loan at all. So, why did your credit score go down?
You Missed a Payment
One of the most common reasons why your credit score may have decreased is simply because you missed a payment. Payment history is one of the most important factors in your credit score, so even one late payment can cause your score to drop significantly. If you have a history of late payments, your score will likely continue to drop each time you miss a payment. If you think you may have missed a payment, be sure to check your credit report carefully to see if there is any indication of late payments.
You Opened a New Credit Card
One reason your credit score may have decreased is that you opened a new credit card. While a new credit card can help improve your credit mix, it can also result in a short-term decrease in your credit score. This is because when you open a new credit account, your credit utilization ratio goes up. Your credit utilization ratio is the amount of debt you have compared to your total credit limit. A high credit utilization ratio can hurt your credit score. So, if you open a new credit card and don’t immediately increase your total available credit, your score may drop in the short term.
You Closed a Credit Card
One common reason why your credit score may have decreased is that you closed a credit card. While it may seem counterintuitive, closing a credit card can actually cause your score to go down.
When you close a credit card, you are losing one of your lines of credit. This can lower your overall credit utilization ratio, which is the amount of debt you have as compared to your total credit limit. A lower credit utilization ratio can negatively impact your score.
Another reason closing a credit card can lead to a decrease in your score is that it can shorten your average credit history. This is because the length of your credit history is one of the factors that is used to calculate your score. So, if you close a credit card that you’ve had for a long time, it can shorten the length of your overall credit history, which can lead to a lower score.
If you’re thinking about closing a credit card, it’s important to weigh the pros and cons before doing so. In some cases, it may be beneficial to keep the card open even if you’re not using it, in order to help maintain a healthy credit profile.
You Have Too Much Debt
One of the most common reasons your credit score may have decreased is because you have too much debt. According to Experian, “Your credit utilization ratio—which is the amount of revolving credit you are using divided by the total amount of revolving credit you have available—accounts for 30% of your FICO® Score calculation.” So, if you have maxed out your credit cards or if you are close to doing so, your credit score will suffer. One way to improve your credit utilization ratio is to pay down your debt or ask for a higher credit limit from your creditors.
How to Fix a Decrease in Your Credit Score
There are a number of reasons why your credit score might go down. It could be that you’ve missed a couple of payments, or it could be that you have a lot of debt. Whatever the reason, it’s important to take action to fix your credit score. In this article, we’ll give you some tips on how to improve your credit score.
Check for Errors
The first thing you should do if you notice a decrease in your credit score is to check for errors. If there’s an error on your credit report, it could be dragging down your score needlessly. You can order a free copy of your credit report from each of the three major credit bureaus (Experian, TransUnion, and Equifax) once per year at AnnualCreditReport.com. Review each report carefully to look for any mistakes, such as missed payments that you actually made on time or accounts that don’t belong to you.
If you do find errors, dispute them with the credit bureau in writing. Include copies (NOT originals) of any documentation you have that supports your position, such as cancelled checks or payment history from your lender. Be sure to include your full name, address, and Social Security number, and request that the error be corrected or removed. The credit bureau must investigate and respond to your dispute within 30 days.
Make a Plan to Pay Off Debt
If you have a significant amount of debt, it will take time and commitment to pay it off. The first step is to develop a budget and make a plan. Determine how much extra you can pay each month and put that amount towards the debt with the highest interest rate. As you pay off each debt, you’ll free up more money to put towards the next debt on your list.
If you only have a small amount of debt, you may be able to pay it off quickly by making larger payments or consolidating your debts into one loan with a lower interest rate. Either way, paying off debt is one of the best things you can do for your credit score.
Use a Credit Monitoring Service
If you want to keep track of your credit score and ensure that it stays high, you can use a credit monitoring service. This type of service will alert you if there are any changes to your credit report so that you can take action quickly. You can also get your credit score from a credit monitoring service, which can be helpful in understanding where you stand.