Common Reasons for a Drop in Your Credit Score

If you check your credit score on a semi-regular basis, you’ve probably noticed that it tends to fluctuate quite a bit. This number changes all the time for a variety of reasons, some of which are more significant than others. It is a good idea to know what can cause a sudden noticeable drop in your credit score. Learning about these factors will help you preserve your credit as a whole, which is good for your long-term financial well-being.

You Have Started Utilizing Your Credit More

Those who start utilizing their credit limit more will most likely notice a sudden drop in their credit score. This drop can be small or fairly large, depending on how much of your credit you take advantage of. It is important for you to keep your credit utilization at around 30% at all times. This is pretty much the magic number when it comes to keeping your credit from falling while still borrowing when you need to.

You Missed a Payment

If you have recently missed a payment on a loan or credit card, you can definitely expect a ding on your credit. A lot of people don’t seem to think that late payments are a big deal, but they definitely can be. When you make a habit of doing this, you will be sure to notice a huge drop in your score. This decrease can take a while to recover from, so you need to make sure you are always on time with your payments. Making late payments is never a good idea and should be avoided whenever possible.

A Negative Item Was Added to your Credit Report

Another explanation for a decrease in your credit score is that some negative item was added to your report. This could a bankruptcy, tax lien, civil judgement, foreclosure, or something else entirely. It is important for you to take a close look at your credit report from time to time. This will allow you to see what your credit is like while checking for errors. If you ever notice something that shouldn’t be there, you need to contest it with the appropriate agency. You never want to simply let a mistake go, even if it seems relatively small or harmless. One negative item can do serious damage to your credit.

You Recently Closed an Old Credit Account

Closing an old credit account might seem like no big deal, but it can result in a marked decrease in your score. You should keep these accounts open to avoid this problem entirely. It is definitely one of the easiest ways to prevent your credit from worsening. Sometimes it is okay to close an old credit account, but you need to be cautious. This can result in your credit utilization rate increasing, which in turn could lower your score as well.

You Cleared Your Student Loan Debt

Believe it or not, paying off your students loans can actually cause a small but temporary drop in your credit. This is especially true if you already don’t have a lot of different types of credit. The sudden lack of diversification can lead to this issue, but it’s nothing to panic about. In fact, paying off your student debt or other loans will ultimately help your credit. Just make sure that you balance things out by opening up a new account of some kind. You will find that your score should recover fairly quickly.

You Applied for a New Loan

Submitting an application for a loan can also cause your credit score to go down in a noticeable way. This is precisely why it is not recommended that you submit a bunch of different loan or credit card applications over the course of a few days or even weeks. Make sure that you wait at least a couple of months between applications. This will help to minimize the damage to your credit. Submitting only one application probably won’t cause your score to go down that much, but it can be easy to get carried away. If you don’t get approved for a certain loan, don’t just keep sending out multiple applications.

Once you have a good understanding of what can negatively impact your credit, you will be able to maintain a high score a lot easier. When you start to build up your credit, you will be able to get better deals on loans, credit cards and so much more. Your credit affects many different facets of your life, which is why it’s so important to understand it inside and out. This information can go a long way towards helping you to become more fiscally responsible. You’ll always want to make sure that you do whatever possible to improve your credit score.

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