Reason 1: Payment Delayed for More Than 30 Days
The payment history significantly impacts your credit score. Credit card and loan payments that are late by more than 30 days are reported to credit bureaus and appear on your credit score. Once the payment delay shows up on your credit report, your credit score is likely to drop.
Reason 2: You Made an Expensive Purchase
Another important factor in your credit score is the amount of available credit you are using, or your credit utilization ratio. Many may be surprised, but if you make an expensive purchase on your credit card in a certain month, you may see a drop in your credit score even if you pay off the balance in full by the due date.
This happens because credit card companies typically report the credit card balance on the last day of the billing cycle. The balance on your credit card statement is usually the balance that appears on your credit report.
Note: It’s relatively easy to correct the impact of a high balance. Just pay down the balance quickly, avoid making additional purchases using your credit card, and wait for the updated balance to show in your credit report. This will help you restore lost credit score points.
Reason 3: Your Unpaid Account Was Sent to a Collection Agency
To protect your credit score, it’s important to pay all of your accounts, not just your credit cards and loans. If you are late in paying non-credit accounts (such as your monthly phone bill), the overdue balance may be sent to a debt collection agency and included in your credit report. Once the debt appears on your credit report, it will undoubtedly cause your credit score to drop.
Reason 4: The Last Set of Debts Aged Off Your Credit Report
When calculating credit scores, credit scoring models place individuals into different buckets, known as scorecards. Your credit file is compared to the files of others in the same scorecard to determine your credit score. While you may be at the top of your scorecard with debt on your credit report, you may slide to the bottom of a different scorecard if any negative information ages off your credit report.
Note: This type of credit score drop is outside of your control. However, as long as you continue to pay your bills on time and keep your debts low, your credit score will improve.
Reason 5: You Applied for New Credit
Anytime you apply for new credit, an inquiry is added to your credit report. Since inquiries account for 10 percent of your credit score, applying for new credit can affect your credit score.
Although inquiries remain on your credit report for two years, they only impact your credit score for one year. After just one inquiry, your credit score should steadily increase and recover within 12 months, provided you do not make other credit mistakes.
Reason
Reason 6: One of Your Credit Limits Has Been Reduced
It has the same effect as purchasing an expensive item. If you have a balance on a credit card with a low credit limit, your credit utilization increases, and your credit score decreases. You may not have control over whether your credit card company will lower your credit limit, but if it happens, paying down the balance can help improve your credit utilization and your credit score.
Reason 7: You Closed a Credit Card, or One Was Canceled
Closing a credit card can impact your credit score, especially if the card has a balance or higher credit limits than your other credit cards. Credit card companies can also cancel your credit card, which will affect your credit score—not necessarily because the creditor closed the account, but because the account has been closed altogether.
Note: Closing your only credit card or your oldest credit card can also impact your credit score.
Reason 8: Bankruptcy Period Expired from Your Credit Report
When the bankruptcy expires from your credit report after seven years (ten years for Chapter 7 bankruptcy), you are likely to move to a new credit score tier, similar to what happens when a collection is removed from your credit report. You may see a decrease in your credit score because your credit performance is now compared to those who have not filed for bankruptcy.
Frequently Asked Questions (FAQs)
Does my credit score go down when I check it?
Checking your credit score or credit report is a “soft inquiry.” It does not affect your credit report or your credit score, unlike when a potential lender checks because you have applied for credit.
How many points does my credit score drop due to a hard inquiry?
The impact of a hard inquiry on your credit score is not the same for everyone. Its effect can vary based on individual factors, but it should not be more than five points.
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Sources:
– myFICO. “What’s in My FICO Scores?”
– Experian. “How Long Does It Take for a $0 Balance to Show on the Report?”
– Equifax. “Collections Accounts and Your Credit Score.”
– TransUnion. “FICO Score 9.”
– myFICO. “Amounts Owed.”
– Experian. “Closing a Credit Card Can Affect Your Credit Score.”
– Consumer Financial Protection Bureau. “What Is a Credit Inquiry?”
– myFICO. “Credit Checks: What Are Credit Inquiries and How Do They Affect Your FICO Score?”.
Source: https://www.thebalancemoney.com/credit-score-decrease-960518
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