7 Possible Reasons Your Credit Score Just Plummeted
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Nicole Spector
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Chris Cluff
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Building and maintaining a strong credit score is crucial. A good credit score shows potential lenders — including landlords — that you are financially responsible. Credit scores range from 300 to 850. A credit score of 700 or higher is considered good, and a score of 800 or higher is considered excellent.
Credit scores are meant to fluctuate slightly so there’s generally no need for concern if you notice your score has gone down a few points in the past month or so. But if your credit score drops more than a few points — or downright plummets — you need to do some investigating right away.
Here are seven reasons your credit score just took a nosedive.
Also, here are tips to improve your credit score.
You Missed a Payment or Are Late With One
According to Experian, your payment history is the most important factor in your FICO Score, the credit scoring model used by 90% of top lenders. It accounts for 35% of your score and, unfortunately, just one late or missed payment can make a significant dent in your score.
You can expect this consequence to occur if you are more than 30 days past due on a payment, when credit issuers report the delinquency to at least one of the three major credit bureaus. The later the payment (say, 60 or 90 days late), the more serious the damage to your credit score.
If you don’t pay up, the credit issuer has the right to send your debt to a collection agency, and the collection account will be recorded on your credit report and remain there for years to come.
You’re Maxing Out Credit Cards
Maxing out credit cards can have a significant impact on your credit score. This is because it hurts your utilization ratio, which makes up 30% of your FICO Score. Make it a rule of thumb to never use more than 30% of your total available credit.
One of Your Credit Limits Decreased
Are you using a credit card that had, say, $5,000 or available credit to borrow and that amount was recently slashed to, say, $4,000? This can hurt your credit score because it increases your credit utilization ratio. This brings us back to the fact that lenders and creditors want to see a debt-to-credit ratio of 30% or below.
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You Closed a Credit Card Account
Did you just close a credit card account? You may have done so thinking this was a smart move if you have too many credit cards, but, alas, closing a credit card account can negatively impact your credit score.
This negative impact is particularly likely if you’ve had the credit card account open for a long time. The age of your accounts makes up 15% of your credit score, with longer payment histories bolstering your credit score.
You Recently Applied for a Loan or New Credit Card
If you just applied for an auto loan, mortgage loan or any other type of formal loan, a hard inquiry has been placed on your credit report. This can make your credit score drop — but not too drastically, and the impact will last up to one year. Again though, this should not be a huge drop, but enough to be noticeable.
There Is Inaccurate Information on Your Credit Report
One of the many reasons to check your credit report regularly is to ensure that all information is accurate and up to date. If it is not, this could negatively impact your credit score. Inaccurate information is also a possible indicator of someone trying to steal your identity.
If you find any errors on your credit report, you need to dispute them. Put together supporting documents and include them with a letter disputing the error. Send this plus a letter detailing the errors and file with all three credit bureaus. If they do not correct the error, file a complaint with the Consumer Financial Protection Bureau.
You’ve Experienced a Foreclosure or Filed for Bankruptcy
If a home you own goes into foreclosure, this will hurt your credit score. You’ll also see a huge drop in your credit score if you file for bankruptcy. A Chapter 13 bankruptcy or home foreclosure will stay on your credit reports for up to seven years, while Chapter 7 bankruptcy will remain on your credit reports for up to 10 years, according to Equifax.
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