Credit is a touchy issue that has roused the concern of countless U.S. consumers. The dependence on this financial component has become so dominant as most rely on it to live comfortable lives. Lines of credit, different types of loans, better interest rates and even employment and business opportunities are just some of the financial perks that can be gained with a high credit score. People are very keen on maintaining a thriving credit standing to make sure that these benefits and services are available to them. However there are instances when one’s credit score drops for seemingly no reason and one is left clueless and disturbed.
Understand what a credit score is.
Your credit score is that three-digit number which rates how good you are as a borrower. It is basically the rundown of all your credit accounts and payment history. Also dubbed as a FICO score, this financial point system ranges from 300 to 850. The score is calculated by the three major credit reporting agencies: Experian, Equifax and Trans Union. This credit score, whether it is FICO or Vantage or known by another name, using a different range, is considered to be a vital measure of an individual’s credit health. Creditor’s use a credit score, along with a credit report, routinely to determine credit worthiness.
Credit score health- the higher the number, the better.
Your credit score determines how much of a loan a lender can approve. This rating is one of the most accurate ways of gauging a person’s credit worthiness. Stringent calculations are done after reviewing a consumer’s credit report from the three credit bureaus. Creditors are sharp when it comes to evaluating levels of credit risks. Mainly, they want to make sure that they are backing up a person who can afford to pay them back hassle-free. This is one of the reasons why a person takes extra measures to preserve an outstanding credit history. So the extreme level of panic is understandable when one encounters a sudden drop in his or her credit score.
Credit score sinking for seemingly mysterious reasons?
Unraveling a mystery which involves a credit score that dipped for unknown reasons can cause stress and frustration. The first question you’ll ask is, “Why did my credit score drop?” You’ve been very cautious with the way you use your credit and as far as your accounts are concerned, you know that all of them are paid and up-to-date. So you’re racking your brains to figure out, “Where did I go wrong?”
Educate yourself credit-wise, then investigate.
The key to find out how this incident happened is through understanding and awareness. Grasping what a credit score is and how it works will help you comprehend how it precisely operates. Before concluding that there has been a credit foul play, take time to assess and investigate the situation.
Here are points to remember to help you understand why your credit score dropped:
1. Late payments.
Remember that payment history has a massive effect on your credit score. Late payments are automatically reflected on your credit reports so it’s best to always pay bills and accounts on time, all the time.
2. New credit applications.
This is one of the important things that an individual should remember: New credit applications entail credit inquiries that can shave off points from one’s credit score. The million dollar question now is: “Does your credit score drop when you check it?” One must know the difference between soft and hard credit inquiries. Hard pulls done by banks and financial companies to check on your credit standing for new credit is what affects your credit score big time. Applying for multiple credit cards and loans will have an adverse outcome so better think twice and assess your current financial situation before you submit your application to all those creditors.
3. Available credit decreased.
Credit is important for one to build. Think of it as constructing a brick wall where you have to lay the bricks one by one. If you do not have enough bricks, your wall will not be high enough. Your available credit and limit counts when your credit score is decided. It’s because a drastic decline in your available credit limit takes place after you make a large purchase, affecting your credit utilization. When your credit utilization goes up, your credit score will go down. Maxing out your credit card, even if you pay the balance in full each month, unquestionably affects your credit score at that particular time. There are credit facts and fallacies that we must be familiar with so that we are not left baffled when our credit score seemingly dropped for no reason.
4. Unpaid account was sent to collections agency.
There are times when we forget about unsettled accounts- varying from rental payments that we never settled or medical bills, library fines or parking tickets that were left unpaid. Don’t assume that credit card accounts, mortgages and loans from major creditors are the only debts that have a huge impact on your credit report and ultimately, your credit score. Any form of unpaid account forwarded to a collections agency will reflect on your credit history and will surely have an effect on your credit score. That is why credit monitoring and careful review of your credit report is essential for a robust credit score.
Regular credit monitoring may initially seem tedious but the benefits that can be reaped from this healthy financial practice will produce long term benefits and will reinforce credit protection.
Solving the mystery of a dropping credit score is not at all complex. All we need is the right information and to be educated properly so we can always be right on track and not be misled by credit myths that can leave us lost and confused.
Have you experienced a sudden drop on your credit score and didn’t know why or what to do? We’d like to hear from you. Feel free to share your thoughts and feedback below.
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