These 7 Factors Will Decide Your Credit Score Stability
These 7 Factors Will Decide Your Credit Score Stability
BENGALURU: Your credit score tends to fluctuate between good and bad credit levels. Have you ever wondered what the reasons that affect it are? The credit score calculation is so complex, it could be hard to pinpoint the reason for a credit score drop, but these are some of the known causes of a loss of credit score points, according to credit.about.com.
Hard Credit Enquiries:
Generally when you apply for a new form of credit, whether it's a credit card, an auto loan or a mortgage, a hard inquiry is placed on your credit report. Normally, a single inquiry would initially only drop a few points off of your score. However, if you have applied for several accounts in a short period of time, you could appear desperate for credit and the damage from those hard inquiries might add up.
However, to avoid such enquiries, only apply for credit when you need it and try to focus on cards that you have a good chance of getting approved for. Credit Karma shows you your estimated Approval Odds before you apply, so you can make a more informed decision.
Your Last Collection Dropped Off Your Credit Report:
When calculating credit scores, FICO places people in different buckets known as scorecards. Your credit profile is compared to other people in your scorecard to come up with your credit score. While you may have been at the top of one scorecard with the collection on your credit report, you may fall to the bottom of a different scorecard when certain negative information falls off your credit report.
This type of credit score drop may only be temporary. Keep doing the right things and your credit score will improve.
Total Accounts:
While it's not the most important part of your credit score, having a good mix of different types of credit and an appropriate number of open accounts shows lenders that you have the experience to pay off debt responsibly. If you have just paid off the only loan you have, your credit mix might look a little less diverse to lenders.
Similarly, if your total number of accounts suddenly skyrockets or nosedives, that could indicate that you are financially strapped and need credit or can't afford your existing credit accounts.
Made An Expensive Purchase:
Another important factor in your credit score is how much of your available credit is being used. If you make a big purchase on your credit card one month, you could see a credit score drop even if you pay the balance in full by the end of the month. That's because your balance could be reported before your payment was received.
Open Credit Card Utilization:
Carrying a significant amount of debt on your credit cards could be one reason why your score dropped. Your credit card utilization rate is a snapshot of the total debt you have on your credit cards divided by your total credit limit. If you are relying too much on credit, a lender could view that as a bad sign.
The solution for this is that you can try paying down debt, taking on less debt in the future or increasing your available credit on your credit cards by requesting a credit limit increase from your card issuer.
Percent Of On-Time Payment:
Since creditors are trying to judge how likely you are to pay back your debt, reliability is important to them. If you miss even a single payment, your score could take a hit. The relative impact could be especially high if you have never missed a payment before. The solution for this lies in opening up your full credit reports if you are not sure which payment you have missed..
Click on the "Accounts" tab and expand each account to see your 48-month payment history.
Some Unpaid Account Was Sent To Collection:
To protect your credit score, it's important for you to pay all your accounts, not just your credit cards and loans. If you fall behind on your non-credit payments, they could be sent to a collection agency and included on your credit report.
Building Your Credit Knowledge:
Credit scores often seem like they are shrouded in a veil of mystery. Now that you know what might have brought down your credit score, try your best to keep an eye on your credit health. Even though these situations can't always be avoided, understanding their impact could help you make more informed decisions in the future.
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