One feeling we all don’t like to experience is the sinking feeling you get when you realize that your credit score has gone down. You may feel confused or concerned. You’re probably also left wondering why your credit score dropped.
Today, we want to explore a few of the possible reasons why your credit score decreased and what you can do about it.
A New Account Was Added
As you probably know from many of our other articles, the age of an account is one of the most important, as it can affect the overall age of your credit. Credit age correlates with payment history and payment history is one of the most important components of your credit’s health.
In fact, your payment history alone makes up 35% of your credit score. Credit age, on the other hand, makes up 15%. Both of these together amass 50% of your overall score. When it comes to age, the more new accounts that you add, the more your average age decreases.
If you recently added a new tradeline, or if you become an authorized user on a young account, it could mean that your credit score is decreasing due to the shrinking average age.
The Balances On Your Account Increased
Are you missing payments each month and accumulating debt?
Did you recently make a large purchase using a credit card?
Either of these situations could hurt your 0overall credit score. Your credit utilization rate increases along with your account balances, which is bad news considering the fact that credit utilization makes up nearly 30% of your overall score.
You want to keep your utilization low to make it seem like you are not overextending your financial abilities. A few ways to combat this include pre-paying your credit card bill, increasing your credit limit, or making frequent payments.
You Recently Took Out a Loan
Whenever you open a new account, your credit score can get hurt. One reason is that an additional account might not have age, meaning it will negatively affect your average age. Beyond that, the action of applying for a loan may have triggered a hard inquiry on your account. Every hard inquiry on a credit report could impact your score by five points.
A newer account could negatively impact the new credit section of your overall credit score. Unfortunately, getting new credit cards makes you look like a risky consumer, meaning it could slightly reduce your overall score.
While all of the reasons above are fairly common when it comes to decreases in credit scores, there are plenty of other reasons why your credit score may have dropped, including missed payments, denied credit applications, accounts going into collections, closing a credit card, or fraudulent activity.
While we always recommend going to the root of the problem when fixing your credit, once you have yourself back on track, make sure to give us a call to see how tradelines can help take your score to the next level.