Credit Rating Factors
There are a few factors that have the biggest impact on your credit store. If a change occurs to one of them, even a seemingly small one, your credit score could be greatly impacted. Here are some things that could have dropped your score.
Revolving Credit Utilization Increased
The way that you use your revolving credit such as credit cards has the biggest impact on your score of anything else. Ideally, you want to be using no more than 30 percent of your available credit. Use more than that and your score can suffer. So, if you have a 1000 dollar credit line, you would want to keep the balance under the 300 dollar mark for the best credit score.
This is by no means an all or nothing thing. As your utilization goes up, your credit score will drop incrementally. So, increase it to 40%, it will drop. Increase it to 50%, it will drop more. Go to 60%, it will drop even more. Etc. Etc.
Here are some things that could have hurt your utilization score.
- You recently made a charge.
Did you recently make a charge on your account? If so, that could be the entire reason for your score drop and to remedy this, you just need to make a payment and bring your balance back down. - You recently closed a credit card.
If you close a credit card, you will lower the available credit that you have available. This could increase your utilization ratio and decrease your score. It is usually not a good idea to close a credit card unless it has an annual fee.
Sometimes a creditor will suddenly close an account if it has been inactive. To keep your accounts from being closed, try to use them once a year. - Your creditor lowered your limit.
Occasionally a creditor will review your account and lower your limit. This could increase your utilization and lower your score. Review your accounts and see if any limits have changed.
A Late Payment Posted
Paying your bills on time is a big deal for your credit score. A single 30 day late pay can have a big impact. A 90 day late strike on your report is even worse. Ironically, the better your credit is, the more a late payment will affect your score.
Late payments can stay on your report for up to 7 years before they fall off. The affect that they have on your score will greatly diminish over time though..
If the late payment was posted in error, you should dispute the payment on your credit report. You will need to write to the credit bureaus, all three, and protest the late pay. They then have 30 days to investigate the matter and if it can not be proven, it has to be removed. It may be a good idea to contact the creditor in question as well to inform them that you disagree with the late pay assessment.
If the late payment is accurate, there is nothing you can do except to prevent the problem from happening again. If you have a hard time remembering to pay bills, set up reminders and/or automatic payments.
You Have Applied For Credit
When you apply for credit, a hard inquiry may occur. These hard inquiries will show up on your credit. Although they are a lesser factor than the ones above, they can still drop your score several points.
The effect of a hard inquiry is not long lasting. It will remain on your report for two years but it will really only affect it for one year.
If you believe that you did not authorize the inquiry, you can dispute it just like anything else. You will need to contact the credit bureaus in writing to make your dispute.
Moving forward, be careful about applying for new credit. When offered a discount at checkout to apply for a store card, it might be better to just pass. Avoiding new inquiries is especially important when preparing for a major purchase such as an automobile or new home.
Incorrect Information Has Been Recorded
The bureaus do their best but sometimes negative information can post to an account. Because of this, you should thoroughly review your credit report at least once a year and set up credit monitoring.
These days it is easy to monitor your credit with just about every credit card company offering the service for free. There are also companies such as Credit Karma and Credit Sesame that offer the service for free. They will slam you with affiliate offers but the service they provide is worth the annoyance.
If your score has dropped for no reason, scan your report for accounts that are not yours or derogatory statements that do not belong to you like bankruptcies.
Found something that was posted in error, you guessed it, you need to dispute it to the bureaus. Do so in writing and they have thirty days to investigate and prove the information correct. If it can not be proven, it will be removed.
You Closed An Account
At this point, you already know that closing a credit card can negatively affect your utilization and decrease your score.
What you might not know is that closing other accounts can actually decrease your score. Paying off student loans is a common example.
If you have been paying your student loan faithfully for years, it has probably been a good factor in your score. If that account is suddenly closed, even if paid in full and in good standing, it can hurt your credit.
It seems backwards but the reason that this can hurt you is that your student loan gave you a mix of different types of accounts. Having a variety of different credit is a positive ranking factor.
In this case, your student loan could have also been one of your older accounts and closing it could have greatly decreased your average account age. That would also cause a decrease in credit score.
Even if paid satisfactorily, closing any credit account could hurt your score if it lowers your average age of accounts, decreases your credit mix number or if the on time payment history was positively affecting your score.
