Why did my Credit Score suddenly go down?
Recently, I heard this question from one of my friends, who has been managing her Credit Card very well.
But, missed something at some point, which stole 78 points from her Credit Score.
I know it is hard to believe, as it happens suddenly, also it is not really a great news to hear.
It really a terrible situation, when you see your Credit Score goes down without any specific reasons.
That is why I wrote this article, to help people out there who are in the same situation and don’t know what to do next.
Outcomes of this article
In this article, I’m going through the 8 reasons, that may have possibly dropped your Credit Score and how to avoid that situation.
Summary – 8 Reasons your credit score may have dropped
- Missing Payments or Late Payments
- Increased Credit Utilization
- Hard Credit Inquiries
- New Credit Card Application
- Auto Loan or Mortgage application
- Inquiries on your Credit Report
- Cancellation of Open Credit Lines
- Inaccurate information on your Credit Report
- Mistakes did by Third Party Companies
- Unpaid accounts may have sent to collections
- You are removed from your parents/spouse’s credit cards
Let me explain each of them for you.
#1 Missing Payments or Late Payments to your Credit Cards
Missing payments or making late payments are not really a fun thing to do when it comes to dealing with your Credit Cards.
When you miss payments or make a late payment, that may end up with reporting to the Major Credit Bureaus and it may even show up on your Credit Report for years.
So, when you see a sudden drop in your Credit Score, just look back to your Credit Card payments and make sure that you haven’t missed any of them.
In case, if you haven’t paid any of your previous Credit Cards Bills, follow these steps to stay out of trouble:
What do I need to do, if I missed a payment to my Credit Card?
- Call the Credit Card company.
- Negotiate to get the late payment charges waived or refunded, if you’ve already paid.
- State yourself as a valuable customer, if you have that account for a long time and it happened for the first time.
- Request them to not to report it to the Credit Bureaus.
- In most cases, the Credit card companies may demand you to pay your outstanding balance in full amount.
#2 Increased Credit Utilization
An Increased Utilization also may result in a sudden drop in your Credit Score. The recommended utilization ratio is below 30% of your maximum credit limit.
Anything over 30% may result in dropping your Credit Score.
Let’s say, you made a big purchase with your Credit Card, recently.
And your Average Credit Utilization went over 70% of your total Credit Limit.
In this case, no matter even if you have great payment history, you will definitely see your Credit Score is dropping drastically.
You should always aware of available Credits that you have left with your Credit Card.
That will at least keep you prepared before you go for big purchases.
Once it happened, try to pay the amount in full or to keep your average utilization somewhere below 30%.
That will help you to gain your Credit Score back to where it was.
#3 Hard Credit Inquiries
Hard inquiries are another reason that could possibly drop your Credit Score.
Hard inquiries happen when you:
- Apply for a New Credit Card.
- Apply for an Auto Loan or Mortgage.
- Inquire to any major credit bureaus about your Credit Score or Report.
- If you really want to apply for a new Credit Card, you could possibly refuse it by asking your current credit issuer for more benefits, such as increase in credit limits, special bonuses, etc.
- Instead of inquiring about your Credit Score or Report directly to Credit Bureaus, use third party companies which will help you get what you want, with a soft check on your account.
#4 Cancellation of Open Credit Lines
This is a common mistake done people out there. There are a couple of things may happen when you cancel any of your current Credit Card.
- Your average Credit Utilization ratio varies.
- The average age of your Credit Line decreases.
Both results may affect your Credit Score.
Let’s pick the first one:
When you cancel any of your current Credit Cards, depending on your current balances on other credit cards, your average utilization may go up or down.
If your utilization goes down, you are good to go, but, what if it is not!
You’ve already read, how a decrease in your average credit utilization causes a sudden drop in your Credit Score.
Let’s jump into the second scenario:
Suppose, you’ve canceled one of your old Credit Card, the average age of your credit, tends to decrease.
Longer Credit history is always good for your higher Creditworthiness.
If the Credit Card that you are planning to cancel, is a no annual fee Credit Card, better don’t go for it.
A no annual fee Credit card is always a nice to have Credit card in your wallet, as long as it won’t hurt you.
#5 Inaccurate information on your Credit Report
This is a nightmare when it comes to dealing with Credit.
But you can dispute to get all the errors corrected, which found on your Credit Report.
The possible errors could be corrected, are;
- Wrong Social Insurance Number
- Incorrect Name or Address
- Wrong date of Birth
#6 Mistakes by Third Party Companies
Somewhere in this article, I’ve mentioned that you could use third party services, in order to check your Credit Score and Reports.
These third party companies are partnered with the Major Credit Bureaus. And the Credit Bureaus provide a soft check result to these companies.
So, if you sign up with these companies they will help you see your Credit Score or Report for free cost and also without doing any harm to your Credit.
But, sometimes, these companies are pulling incorrect data from the Credit Bureaus and honestly, I really don’t know why it happens.
So, if you are using any third party services like this, you need to check the status directly with any of the major credit bureaus.
#7 Unpaid accounts may have sent to collections
May be you haven’t missed any payments to your Credit Cards but, suddenly your Credit Score dropped.
And you haven’t over spent with your Credit Card, neither canceled any credit cards, nor made any hard credit inquiries, but, still, your Credit Score went down suddenly. Is that you?
You need to start thinking out of the box now.
If you’ve missed payments to any of the services such as phone, the internet, auto loans, auto insurances, etc, that also may cause a sudden decrease in your Credit Score.
You might be thinking, how the heck is that possible, but, it is possible.
If you miss payments, then most of these services will send it to the collection, resulting in a drastic decrease in your Credit Score.
I had a similar experience when I missed a payment to my phone which was from Bell Canada.
You’ve noticed a sudden drop in your Credit Score and checked all the possible things could happen which may be dropped your Credit Score, but found nothing.
The next thing you need to do is checking all your paid services and make sure that payments are made on time.
Once you’ve found anything like that, call the service provider and negotiate to get that cleared.
These are the possible reasons that may have suddenly dropped your Credit Score.
But, I still have one more, but, it may or may not be a matter to you.
As you all know, Becoming an authorized user of other’s card will help you in increasing your Credit Score.
Let’s say that you are an authorized user of your parents/spouse’s Credit Card which has a great payment/utilization history.
Suppose, if you are removed from that Credit Card account, and you personally don’t have any strong Credit Card status yourself, your Credit Score may drop drastically.
But, like I said, this may not happen to all of you.
But, if you are an authorized user of someone else’s card and you saw a sudden decrease in your Credit Score, this would be a matter to you.
Share your thoughts as comments.