Red Alert! Your credit score just dropped! Here are 7 reasons why that may have happened
You’re going about your day, minding your own business, and everything seems fine. The sun is shining and skies are blue as you head to the mall. You stop at a few stores to pick up some things, when the friendly cashier offers a 25% discount on your purchase that day if you apply for their store card.
“Sure, why not?” you think, and fill out their quick form and offer your social security number and details.
But the cashier’s bubble-gum demeanor turns menacing when she reads her computer befoe giving you the bad news: your application has been declined.
Red Alert! Red Alert!
What? How is that possible?!
You thought your credit score was close to 800 and you pay all of your bills on time. You can’t even get a retail store card?
Something is seriously wrong!
There’s no need to panic – these things happen.
While unfortunate, there are ways to find out what’s secretly sinking your credit, proactively prevent it from happening, and repair your credit so your FICO is back to lofty heights.
Here are 7 common reasons why credit scores drop seemingly overnight:
- You missed a payment
If your credit score just took a nosedive, it’s quite possible that you missed a payment or submitted a payment late. In fact, 35% of your FICO Score is based on payment history, so paying all of your credit cards, loans, and mortgage on-time (or early!) is crucial for a great score. And a few days late is one thing, but if you’re more than 30 days late, your score is ready for a big beating!
- You made a costly purchase on your card
Since we’re talking about your trip to the mall, did you just buy the latest pricey television, or even finance a new car? Large purchases can negatively impact your credit score if they throw your credit utilization rate out of whack. That ratio of what you owe compared to your total available credit is actually the second most important factor in calculating to your FICO Score.
- You just applied for a new credit card, home loan, or other account
Even if you didn’t charge any big purchases lately, just applying for too many new credit accounts can put a hurting on your FICO Score. Every time you fill out an application for a new credit card, auto loan, student loan, mortgage, or any other account, the inquiry is reflected on your credit report. Some of those show up as soft inquiries, which don’t really affect you. But too many hard inquiries in a short time (and of the wrong kind) may signal to the credit bureaus that you’re demonstrating risky financial behavior, and your score may adjust accordingly.
- Your bank actually lowered your credit limit
It’s not unheard of for a bank or creditor to actually lower your credit limit, even without you knowing. Maybe they lowered that your available credit because you haven’t used your card in a while, something else on your credit triggered this decrease, or other items of fine print (that you’ve never read).
Even if you’ve made all of your payments on time and not racked up new debt, a drop in your available credit will impact your credit utilization rate the wrong way.
- Oops, you shouldn’t have paid off and closed that credit card
It may seem like common sense that paying of your credit card and closing it down is financially responsible behavior, but the credit bureaus may not see it the same way. In fact, 15% of your FICO Score is calculated based on the length of your credit history, so closing a well-seasoned or mature account will actually hurt your score!
- Errors and inaccuracies on your credit report
These days, at least 20% of all credit reports contain inaccuracies, according to the Federal Trade Commission. Others in the credit score industry estimate that upwards of 79% of consumer reports contain an item that is outdated, a duplicate, or outright inaccurate. No matter which statistic you use, that’s an alarming rate of credit bureau screw-ups that are hurting your score!
- Identity theft or financial hacks!
Even scarier, a recent report by Javelin Strategy & Research found that at least 30% of all US consumers were victims of a data breach just last year. In fact, cyber hacks and financial data breaches are the #1 fastest growing crime in the world, and the cost is $16.8 billion to victims in the US every year. If you’ve been the victim of identity theft, financial hacking, or a data breach, you may see your score sink like a stone for no other reason!
If you’ve experienced a sudden credit score drop, don’t panic. Contact your creditors to find out if your accounts are in good standing, carefully tracking your payment history and credit utilization rate. You can also access your credit report from each of the three credit bureaus once a year – for free, allowing you to check for inaccuracies, errors, or ID theft.
But the best first – and last – step to protect your credit score is to contact Blue Water Credit, the industry leader in legal, ethical, and effective credit repair!