Curious about why your credit score took—or is currently taking—a nosedive? Want to know how to rectify your declining credit score? Or proper ways to dispute your credit report? It’s your lucky day if you give an affirmative nod to the above questions. This article takes you through the key points of knowing why your credit score drops and ways to improve it. Need more light on this topic? Explore this content to learn more. To grasp why your credit score goes down:
- Understand the Factors That Cause Your Credit Score to Go Down
- How to Fix a Declining Credit Score
- How to File a Dispute If Your Credit Score Mistakenly Goes Down
- Strategies That Prevent Your Credit Score from Going Down
1. Understand the Factors That Cause Your Credit Score to Go Down
To fathom why your credit score is down, research the elements that are responsible for the reduction. Be aware that many factors may lead to sloppiness or devaluation of your credit score.
These factors are financial activities you probably involved yourself sometimes in the past and they have a direct influence on your credit score.
1. Missed Payments
Pay attention to your payment history to be sure you clear yourself from any outstanding debts. Your payment history determines 35% of your FICO Score, isn’t that huge? Imagine you perform poorly in the subject that gives the 35 points from your total points! You are already giving your chances to come out in flying colors away.
Don’t be 30 days due on a payment, else your creditor reports you to any of the three major credit bureaus (Experian, Equifax, and TransUnion.) And your credit score suffers the consequence.
2. High Credit Utilization
Keep your credit utilization below 30%. To calculate your credit utilization, sum up your card’s credit limit balances against your monthly expenditures. For example, if your card’s credit limit on your card is $10,000, but your monthly expenses are $2,000, it shows that your credit utilization is 20%.
When you increase your credit utilization, it communicates to lenders that you’re over extending your credit limit and you are not in a position to take on new debt. Therefore, maintain low spending and avoid large purchases to prevent maxing out your credit limit.
3. Too Many Credit Inquiries
Avoid frequent applications for credit cards or loans. Lenders take a look at your credit score anytime to determine your creditworthiness whenever you apply for a new credit card or request a loan.
Each time credit card issuers or lenders pull your credit report to check your credit eligibility, it appears on your credit report as a hard inquiry and this in turn slightly affects your credit score for about 1 to 2 years.
4. Recently Closed Credit Card Account
Take note of this: closing a credit card account reduces your credit utilization and credit history (which is good), but can factor into your credit score if the timing is wrong.
To make good timing while ending a credit card account, close the account in good standing (pay all your outstanding payments on the card before you close it). Good standing closure remains on your credit report for 10 years. Also, keep in mind that a recently closed credit card has a 15% stake in your credit score.
5. Non-Diverse Credit Mix
Evaluate the different kinds of accounts you have had in the past or the ones you are currently running. Have a healthy credit mix to show, whenever lenders pull your credit mix to check your performance.
Always maintain consistent payments across your cards to keep running a good credit mix. Additionally, credit mix accounts for 10% of your FICO Score.
6. Identity Theft or Fraudulent Activities
Have you been receiving bills that are not yours? Or charges on your credit card or bank statement you cannot recognize? If yes, there are no two ways to it, you are already a victim of identity theft.
Someone somewhere is already impersonating your card to make payments you are not aware of. Ensure you dispute any case of fraud with the three credit bureaus by reporting any suspected case of identity theft or fraud in your report.
7. Random Errors
Constantly vet your report to be confident that no inadequate information appears in your file.
Watch out for human errors from your lenders such as inaccurate personal data or payment history which can contribute to the dropping of your credit score.
2. How to Fix a Declining Credit Score
To prevent your credit score from consistent dropping, know how to fix a declining credit score. Now that you understand the factors that play roles in devaluing your credit score, knowing how to prevent or fix those factors automatically improves your score.
To fix your declining credit score, focus on your credit report. Your score only reflects how good or bad the information in your credit report is. Pull your credit report from three major credit bureaus to see what’s inside.
Pay any outstanding debts and set automatic payment to always ensure you avoid late payments or overdue in your subsequent payments. However, in using automated payment methods, ensure you have a sufficient balance in your account to avoid overdrafts.
Also, monitor your FICO score regularly for free to track the change of events and avoid new applications for credit cards when it’s not necessary. Furthermore, spend responsibly by setting up a budget to prevent high credit utilization. Lastly, make sure you reduce your overall debts even when you can’t pay them all.
3. How to File a Dispute If Your Credit Score Mistakenly Goes Down
To find out the reason your credit score diminishes, understand ways you can file a dispute whenever your credit score suddenly goes down.
- Request for a copy of your credit report from Experian, Equifax, and TransUnion. The federal act gives you the right to access your report for free every 12 months.
- Analyze the report to see if there are items (especially, fraudulent activities) that are not true about you. See if your name, phone number, and address are correct. Moreover, you may also have errors because of a possible mixed file scenario. Observe your account status if it is accurate. Banks, credit unions or reporting agencies may misreport your account. For example, your closed account may still have an open status, they may report you as the owner of an account when you are just an authorized user. Other errors include the incorrect date of the last payment, a listing of the same debt more than once with possible different names, an incorrect current balance, and an incorrect credit limit.
- Contact the furnisher that supplies the information to the reporting agency to correct the error.
If the provider corrects your information, make sure he notifies the credit reporting agencies so that they can correct the error on their report as well. - File disputes with any of the credit reporting agencies (Experian, Equifax, or TransUnion). Write a letter that explains what is wrong and attach the photocopy of your credit report including other documents that support your dispute.
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4. Strategies That Prevent Your Credit Score from Going Down
To keep your credit score high, practice only the usage of 30% of your available credit limit. If you have a low credit limit, make an extra payment on your credit card every month. To crown it all, set up an autopay system in order to avoid late payment. Also, limit the frequency of opening new accounts to avoid hard inquiries.
In addition, sign up for Experian’s ‘free credit monitoring’ system to receive an alert of any suspicious changes in your credit report. You can also create ‘my Equifax’ account to get six free credit reports from Equifax every year.
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Recap
To fully comprehend the reasons your credit score may be going down, first understand the elements that can affect your credit score.
Then, educate yourself on ways in which you can improve a declining credit score. File a dispute if you suspect a sudden fall in your score and you find unidentified items in your report.
Lastly, put strategies in place to hold your credit score from falling.
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