If you have a habit of monitoring your credit score frequently, or you have signed up for credit score alerts, you will have seen your credit score change over time. While you will be pleased to see your credit score increase, you will be equally alarmed by a decline.
Calculating your credit score is very complex and it can be difficult to determine the exact reason for a decline in your credit score. Since your credit score is based on information in your credit report. An unexpected drop in your score can typically be attributed to a change in the information in your credit report. And, it doesn’t have to be a big change for your credit score to decline. Here are a few possible reasons why your credit score might decline.
1. Your Payment Was Late More Than 30 Days
The payment history has the most significant impact on your credit score. Credit card and loan payments that are more than 30 days old are reported to credit bureaus and reflected in your credit score. As soon as the late payment reaches your credit report, your credit score will most likely decline.
2. You Have Bought in At High Prices
Another important factor in your credit score is the amount of credit available that you use or your credit utilization ratio. It may come as a surprise to many, but if you make a large purchase on your credit card within a month, you could see a decrease in credit score although you pay the balance in full on maturity.
This is because credit card issuers usually report credit card balances on the last day of the billing cycle, and the balance on your credit card statement is often the balance that appears on your credit card statement.
3. Your Unpaid Account Has Been Sent For Collection
To protect your credit score, you must pay for all your accounts, not just your credit cards and loans. If you default on payments to your non-credit accounts, such as your monthly phone bill. The outstanding balance could be sent to a collection agency and included in your credit report. Once a collection appears on your credit report, it will almost certainly cause your credit score to decline.
4. Your Last Collection Fell Off Your Credit Report
When figuring out credit scores, credit scoring models place people in various buckets, known as scorecards. Your credit profile is compared with other people in your scorecard to get your credit score. While you may have been at the top of one scorecard with the assortment on your credit report, you may drop to the bottom of another scorecard if any negative information drops from your credit report.
5. You Submitted A New Application For Credit
Each time you apply for a new credit application, a request is added to your credit report. As requests account for 10% of your credit score, applying for new credit can affect your credit score.
Although inquiries will remain on your credit report for two years. They will only be included in your credit score for one year. After just one inquiry, your credit score should steadily increase and recover in 12 months, provided you do not make any further credit mistakes.
6. One of Your Credit Limits Has Been Lowered
If you have credit on a low credit limit, your credit utilization will increase and your credit balance will decrease. You may not have control over whether your credit card issuer reduces your credit. But when it does, repaying your credit can improve your credit utilization and credit score.
7. You Have Closed A Credit Card Or One Has Been Cancelled
Closing a credit card can harm your credit score. Especially if the card has a balance or more available credit cards than your other credit cards. Credit card issuers can also cancel your credit card, which will affect your credit card – not necessarily because it was the creditor who closed the account, but because the account was closed in the first place.
8. Your Bankruptcy Fell Off Your Credit Report
If the bankruptcy drops from your credit report after seven years and ten years for the Chapter 7 bankruptcy. You are likely to move to a new credit scale. Similar to what happens when a collection submits your credit report. You may see a decline in your credit score because your credit performance is now compared with other people who have not filed for bankruptcy.