Hey beautiful people!
Credit scores are complicated but they’re extremely important to your overall financial health. Have you ever experienced the horrible feeling of checking your credit score and it being waaaaaay lower than you expected? Did you have any idea why it happened?!
Knowing things that can cause your credit score to drop can also help you from losing points in the future! You will be well educated in all things falling credit after this post!
*If you’re looking for tips on how to improve your credit score, we wrote this post just for that! enjoy!
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If you’re worried about your credit score dropping without notice, be sure to check out Credit Sesame so you can be constantly monitoring your score for free!
5 Reasons Your Credit Score is Dropping
#1 – you closed an account
It may seem a little bit silly for a credit score to drop when you finish paying off a debt account, but it does happen! There are two main reasons for this to happen.
The first, is that your debt-to-credit ratio is off. Your debt-to-credit ratio compares the total amount of debt you have and the total amount of credit you have available to you. When you close an account, your debt goes down but so does your available credit!
If you had a credit card account open with a $5,000 credit limit and only a $500 balance, as well as a ton of other debt, when you close this account your debt-to-credit ratio is going to be thrown way off and you’ll see a drop in credit because of it.
#2 – you applied for too much credit, too fast
Did you know that every single time you apply for a new credit account you receive a small hit to your credit score? This is known as a hard inquiry because each company checks your credit to see whether or not you’ll be a good fit for their services and if they’re willing to give you credit.
If you apply for 10 credit cards all at once because you’re super desperate you may see yourself losing up to 100 points very very quickly. This can be a huge shock, but usually your score will bounce back after a couple of months.
#3 – you used too much credit
This one should be kind of obvious, but many people don’t understand that they shouldn’t use all of their available credit. This goes right back to the debt-to-credit ratio from #1!
The more of your available credit you use, the worse off your ratio will be. The recommended amount of credit usage is only around 30%. This means if you have a $1,000 credit limit, you should try your absolute best to never use more than $300 of your limit if you want to see a healthy score!
#4 – you missed a payment
Obviously missing a payment is going to have an impact on your credit score because it shows that you may miss more payments in the future. If you only miss one payment, it won’t be the biggest deal. However, if you miss a bunch of payments you’re going to see a very fast decrease in your credit.
You should always make sure that you make a payment, even if you are a few days or weeks late. Don’t continue to let your late payments add up! Pay them one at a time and your credit will start to bounce back bit by bit.
#5 – they changed the algorithm
A drop in a credit score isn’t always your fault! There is a small chance that the credit reporting companies changed something in the way they calculate their scores and this could change your score by a few points here or there.
This is something you can’t control in any way but you should always do some research to stay current on the types of factors that impact your credit score.
Have you ever experienced a random drop in your credit score? What made it happen? How did you fix it? Let me know in the comments below!