Most people have checked their credit score one day only to check it the next day and find a significant decrease. This happens all the time, and credit rating systems being as calculated as they are, it can be difficult to know why these things happen. Why your credit score drop? Here are a few explanations to help you understand the process.
Once one of your payments is more than 30 days late, your creditor may report that delinquency to the credit agencies. This will show up immediately on your report, and it will drop your credit score. How much this drops your credit score depends on the number of other accounts you have on your record.
You used your credit score for a large purchase
One of the most important factors in your credit score is credit utilization percentage. The percentage of your credit that you use will have a major impact on your score. If you have a credit limit of $3,000 and you use more than $1,000 of it, then your credit score will go down. The more credit you use, the more you can expect your score to dip.
A non-credit account ended up in collections
Some things that you might not think of as credit could bring down your score. If you have an unpaid parking ticket, for instance, the city could send you to collections. If you fail to pay your phone bill, that account might end up in collections, too. When an account goes to collections, your score will drop significantly.
You moved into a different “bucket”
When calculating credit scores, FICO places all of its consumers in different groupings. You are then compared to each consumer in that group, and your credit score is a representation of how well you compare. If you have something negative drop off of your report, you may get moved into a better bucket. This might drop your score for a few weeks. This type of drop is not bad, though, and you will move up quickly if you stay diligent.
You applied for a credit account
Just applying for a bunch of credit cards can bring down your score. Ten-percent of your credit score is determined by the number of credit inquiries you make. These things will fall off of your report within one year, though, and they usually won’t drop your score more than five or ten points.
A credit limit on your record was decreased
When one of your creditors decreases your credit limit, this can have a hugely negative impact. Not only will this raise the percentage of credit that you are using, but it will also reflect poorly in its own right. This is something that can leave you with a 20 or 30 point reduction.
A credit card on your record was closed
When you close a credit card or the creditor closes your account, your credit score can drop for a couple of reasons. First, it might bring down the average age of your accounts. The longer you have had credit, the better off you will be. Likewise, if your credit card was closed under bad circumstances, this can act like a collection on your record. Here is where you can get your credit score.
Many of these events are only temporary, and people who remain on top of their credit will find that they move back up in a hurry. Consumers should know that their credit score can be quite volatile, and it is not unusual for their credit score to drop by ten-percent or more without notice.