Credit score dropped for no reason? 

Want to know why your credit score dropped but can't figure out why? Learn what a good and bad credit score is before examining the reasons for its deterioration.

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Reasons for the deterioration of the credit score

By examining the main reasons for the deterioration in your credit rating, you can understand why your score began to deteriorate and understand what you must do to maintain it at the proper level.

If you keep an eye on your credit score, you probably know that it changes over time. Of course, you, like most people, want to increase your credit rating, but it can also suddenly go down.

Many people find it quite hard to determine the reason for a credit score decrease. Since your credit is based on the credit report information, a decrease in your credit rating is due to changes in the information in your credit report, while in order for the credit to stay the same there should be no significant changes.

Of course, there are many reasons for your credit rating to go down, such as late or missed payments, applying for a new loan, or exceeding your credit limit. So, in order to understand why your credit rating has dropped, you need to pay attention to the factors that affect your score. Payment history, the length of your credit history and the amount of available credit you are using, are usually basic. There are, of course, other elements that can affect your credit. So, study what is a bad and good credit score, as well as the main reasons for the deterioration of your credit rating in order to understand how to fix the situation.

What is a bad or good credit score?

Of course, a good credit rating gives the borrower a lot of advantages, such as better credit offers, good credit conditions and favorable interest rates. However, a bad credit rating can negatively affect your life, as you will receive the most disadvantageous and expensive loan offers. What is a good and bad credit rating?

Most scoring models, including FICO, use a range of 300 to 850. Thus, if you have a credit score of 800 or more, it is considered ideal and you can get the best deals and interest rates. A credit score above 700 is good, and borrowers with such a loan will also receive good offers with favorable credit terms. If your credit score is below 669, it is considered to be fair or poor. So, borrowers with such a loan will not be able to qualify for competitive interest rates and will be forced to pay a large amount as interest.

Thus, a credit rating is very important for any borrower who does not want to overpay a large amount of interest. Maintaining a good credit score is a difficult process as there are many things that can negatively affect your credit score. So, it is important to know the main causes of credit deterioration in order to avoid them and maintain a good credit. If you keep an eye on your credit and look at your credit report from time to time, you can keep it good and get the best deals.

Why is my credit score going down?

1. Missed or late payments

As you know, payment history is the most important factor affecting your credit history. Payment history is about 35 percent of your credit, so even one missed or late payment can negatively affect your credit history. Thus, you must ensure that all payments are made on time.

It is also important to note that if your payment is more than 30 days overdue, the lender will report it to the credit bureau and this will lower your credit rating. If your payments are delayed by 2 or 3 months, this will have even more serious consequences. Remember that information about your missed and late payments remains in your credit file for 7 years. Thus, constantly check your credit score and avoid late payments.

2. Application for a credit card or loan

You probably know that every time you apply for a credit card, loan or mortgage, lenders ask for a copy of your credit report. They do this to make sure you can pay off the debt. This way, based on your payment history, credit usage, and account types, they will decide whether to lend you money.

When someone other than you checks your credit history, it is reflected in your credit report, which can also affect your credit history. Typically, the changes are minor, however, if you applied for a loan several times in a short period of time, it can worsen your credit. Moreover, the more requests there are in your credit file, the less chance the new lender will approve your loan. Thus, before submitting an application, you should carefully study the requirements of the lender and make sure that you meet them. If you do this, the chance of rejection will be much lower and you will not have a lot of requests on your credit report.

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3. Increase of credit utilization

A high percentage of credit card use often results in a lower credit rating. Credit utilization is the next most important factor affecting your credit history. Thus, depending on your card limit, even a large purchase can affect your credit score. Often, an increased utilization rate of a loan shows creditors that you are unreliable and they are no longer sure that you will be able to repay the debt.

It is recommended that you use no more than 30 percent of your credit limit to keep your credit score good. People with excellent credit scores use about 10 percent or less of their credit, which has a positive effect on their credit history. Thus, pay attention to the loan utilization rate and try not to exceed the limit by more than 30 percent.

4. Closing a credit card

Closing a credit card account also often negatively affects the credit score. Typically, closing a credit card increases your credit utilization rate as well as shortens the overall length of your credit history. Thus, it is worth thinking a few times before closing a credit card you don’t use.

So, when you close your credit card, your credit limit is removed from your overall utilization ratio, which can negatively impact your score. Having your card for a long period of time closed(10 or even 20 years) will significantly reduce your average credit age and worsen your credit score. As you know, the length of your credit history is 15 percent of your credit rating, so a long history has a positive impact on your credit score. However, it is also worth knowing that closed accounts in good standing will remain in your report for a long time (up to 10 years). Thus, if your credit card does not have a high annual fee, you are better off keeping your account open in order to maintain the length of your credit history.

5. Inaccurate information on your credit report

You probably know that it is important to check your credit from time to time, as a regular check is the best chance to make sure that there are no mistakes or inaccuracies in your credit. Of course, you should not rely on this, since mistakes are rarely found in credit reports, however, if the previous points are not about you and your credit score has decreased, you should look at the credit report. So, inaccurate personal details or payment history can also negatively affect your credit score, although it's not even your fault.

Typically, inaccuracies in a credit report are the result of a lender mistakenly providing incorrect information. It also sometimes means that you have become a victim to identity fraud. Thus, if you notice any inaccurate information on your credit report, you must dispute this information with all three credit bureaus.

6. Foreclosure or bankruptcy

You probably know that late payments often lead to bankruptcy, which negatively affects your credit rating.

Any event such as foreclosure or bankruptcy will not only worsen your credit score but also deprive you of your borrowing power in the future. It is also worth knowing that a legitimate foreclosure stays on your credit report for 7 years. Thus, you should not bring the situation to bankruptcy, as this can significantly worsen your life in the future.