When you notice a drop in your credit score, it can certainly draw some questions. We all try to pay our bills on time, at the right amount, and keep our credit usage at a maintainable rate. However, sometimes we might fail, as humans do. No one's perfect, but sometimes that can reflect on your overall credit score.
If your rate does drop, it's likely due to something specific. Wondering what's up?
Here's 4 of the most common reasons as to why your credit score might have dropped.
1. You Have Late or Missing Payments
Your payment history is one of the most influential elements to your overall credit score. Even one late or missing payment can negatively impact your credit, so make sure to stay on top of things such as due dates and minimum payment amounts.
2. You Applied for a Loan or a New Credit Card
So, you found a new card that's just right for you! Or maybe, you just took out a loan to complete that home renovation you've been dreaming about. Unfortunately, while both of these things can sometimes be exciting for you, it can be less than exciting for your credit score.
Any time you authorize someone, such as a credit card company or lender, to check your credit report, you might notice a hit to your score - known as an inquiry.
3. Your Credit Utilization Has Gone Up
Sometimes it's too easy to charge a purchase and say "oh, I'll pay it off later." Unfortunately, charges like these add up quickly. Depending on a card's credit limit, maxing out the card, making a large purchase, or continued use with small payments can lower your score. You never want to leave a large amount on a card for an extended period of time. Feel free to use your credit card for purchases, but make sure you keep the debt tied to that card low.
4. You Closed a Credit Card Account
Just because you have a card you don't use, doesn't mean you should close it out - especially if it's one of your oldest cards. This will reduce the age of your credit history, which is another element which impacts your credit score. The longer you have a card or account open shows that you are able to maintain a credit card over time without establishing high debt. Unless the card has a high annual fee, consider keeping it open to maintain your overall credit limit and credit history.
Hopefully these four factors will assist you in determining why your score has dropped, or could drop. A strong credit report and credit score are important when working towards overall financial health, so work to keep your credit nice and healthy - just like you strive to do the same for yourself!