Why Did My Credit Score Drop?

Several reasons could cause your credit score to drop. These often include late and missed payments, new credit applications, or a change in your credit usage. To get a good grasp on why your credit score has changed, you'll need to analyze the factors that make up your credit score.

Your payment history will dramatically impact your credit score. The amounts owed on your debt accounts and the length of your credit history can also play a pivotal role in dropping credit scores. Fallacies and inaccurate information on your credit report could also explain your most recent credit score dip.

The most likely reasons why your credit score could have dropped include a missing or late payment, a recent application for new credit, a large credit card balance, or closing a credit card. Read on or contact an attorney specializing in bankruptcies to understand how to return after your score takes a hit.

Late or Missing Payments

Most lenders see payment history as the most important factor in your FICO Score. Your payment history accounts for 35% of your score. One late or missed payment can negatively impact your score. It's imperative to make all of your credit payments on time.

When you are more than a month behind on a payment, credit issuers can report the delinquency to at least one of the three major credit bureaus, and this could cause a dip in your credit score. The longer your payments are past due, the more of an effect it will have on your credit score.

If delinquent accounts remain unpaid, the creditor will send your debt to a collection agency, and the collection will be recorded on your credit report for seven years. If you're able to make your credit payments on time, a record of healthy credit behavior strengthens your score.

You Applied for a New Credit Card

Creditors examine your credit report each time you apply for a new credit card. This is because they need to understand how much of a risk you pose before they offer you any money. Hard inquiries temporarily lower your credit score by a few points for one to two years.

To avoid unnecessary hard pulls on your credit report, check if you qualify for a new card or loan by using preapprovals and prequalification offers. Although they won't guarantee you'll be approved, they help give you a good indication if you qualify. Spreading new credit applications over time can also help avoid credit score drops.

High Credit Card Balance

Credit and bankruptcy professionals recommend using no more than 30% of your credit limit. Going over 30% could cause a drop in your credit score. Credit utilization is one of the main factors that determine your credit score. Each time your credit utilization increases, even if it is still below 30%, this could lead to a drop in your credit score.

Paying off high balances or securing a higher credit limit, without a hard inquiry, can help alleviate your credit strain and improve your credit score.

Derogative Credit Marks

If you don't pay back a loan as stated in your terms of agreement, this can lead to derogatory marks on your credit reports. The most common reasons why banks and creditors place derogatory marks on your credit are as follows:

• Bankruptcy
• Charge-off or account in collections
• Credit judgment
• Foreclosure
• Late payments
• Lawsuit
• Tax liens

Unfortunately, derogatory marks don't come off your credit reports in two years. Instead, they remain on your credit reports for up to 10 years. However, the harmful score effects of derogatory marks decrease over time.

If you've noticed derogatory marks on your credit report, speak with a credit and bankruptcy law professional about having them removed. Your credit team can confirm the legitimacy of the mark and dispute it with the credit bureaus on your behalf. Some credit assistance professionals will even help you dispute illegitimate derogatory marks for free.

Credit Card Closure

Each time you close an unused credit card, it can increase your utilization ratio and reduce your credit history. Both of these choices could negatively impact your credit score. Cancelling a credit card account will remove it from your overall utilization ratio and closing a credit card account can trim your average credit age.

The span of your credit history accounts for 15% of your FICO(R) Score, so the longer your credit accounts are open the better for your scores. It's important to note that accounts closed in good standing, could remain on your credit report for up to 10 years and positively add to your payment history and credit score.

Consider keeping remaining lines of credit open unless its annual fee is not affordable. If you require further assistance understanding why your credit score dropped, speak with a credit and bankruptcy professional.

Inaccurate Information on Your Credit Report

Many credit professionals recommend regularly checking your credit reports to make sure no inaccurate information pops up in your credit profile. Mistakes happen, and invalid information such as erroneous personal data or payment histories may cause your credit to drop.

Inaccurate credit reports could cause lenders to report the wrong information, lead to denials, and also be an indicator that your identity has been stolen and you've become a victim of identity fraud.

You have the legal right to challenge any information that could be potentially fraudulent. If you spot something on your credit report that you feel is inaccurate, dispute it with all three credit bureaus as soon as you can. Doing so may prevent your credit score from dropping even further.

Identity Theft

According to identitytheft.org over 33% of Americans have experienced some form of identity theft. Identity theft is one of the most common concerns for fraud and could negatively impact your credit score.

If someone fraudulently uses your credit and personal information to go on a shopping spree, this can negatively affect your credit for multiple reasons. Fraudulent charges can increase your credit utilization, cause hard inquiries, and missed payments can do damage to your credit history.

If you've experienced identity theft, use IdentityTheft.gov to report the activity and create a plan to move forward. It can also be beneficial to activate fraud alerts on your credit accounts and through the national credit bureaus Equifax, Experian, and TransUnion. Credit monitoring will assist you with staying on top of your credit activity so you can monitor any fraudulent activity on your accounts.

How To Handle Drops in Your Credit Scores

Drops in your credit score can negatively impact your ability to find a job, buy a house, improve your business, and more. These drops in your credit score can be stressful, but these negative effects don't need to be permanent. There are ways to restore your credit score and prevent credit decreases in the future with vigilance and effort.

You can check your credit score free of charge if you want personalized information on what caused your credit score to change. It's important to remember that credit scores are volatile, and they can be improved with positive financial habits. However, if you're having trouble preventing drops in your credit, or need bankruptcy counseling, professionals can help.

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