Even when you pay the same bills, have the same number of loans, and are always careful with your credit cards, your credit score can still fluctuate from month to month.
It may appear that your credit score varies with the seasons, even if you don’t think you have done anything that could impact it.
Sometimes your score changes due to reasons beyond your control, but most of the time your own activity is what affects your score, even if it’s just in subtle ways.
Let’s look at the things that influence your score and why it might change even if you don’t think you’ve changed your activity.
Why Did My Credit Score Change?
Your credit score is generated using your payment history, the amount of money you owe, the length of your credit history, the type of credit you have, and new credit that has been introduced, therefore a change in your score indicates that one of these factors has changed.
But don’t panic! Your obvious first step should be to determine whether the situation demands attention or a solution. Your credit score may fluctuate a few points here and there for a variety of normal reasons
However, if the drop is significant, you may have reason to act. A dip of 15-20 points or more could be the result of increased balances recorded on one or more of your credit cards — or it could be the result of fraud or something else affecting your credit scores.
When your credit score falls, it’s time to take a closer look and, if necessary, take action.
What You Should Do:
You’ll need to check your credit report to take a look at what exactly has changed. Fortunately, there is a means to not only review your report more thoroughly but also to challenge incorrect info.
Approximately 25% of small business owners who checked their business credit reports discovered inaccuracies.
Utilize the resources at your disposal to evaluate the issue and get the guidance you really need.
Having the necessary information and items on hand before filing a dispute helps make the process as simple and quick as possible, and may help your credit escape unscathed.
Keeping track of your accounts and balances is also important for detecting anomalies and resolving issues like these. Understanding which accounts report to your credit report as tradelines and which do not is equally important for business credit reports.
The dispute procedure could go anywhere from a few days to many months, but being prepared and knowledgeable about your credit will make the process go as smoothly as possible and keep you in the black.
Possible Reasons For A Credit Decrease
Credit scores can fall for a variety of reasons, such as late or missing payments, changes in your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your overall credit history), or applying for new credit accounts.
Don’t forget that credit report inconsistencies caused by errors or identity theft can also cause a drop.
Late Or Missed Payments
Payment history is an important factor in credit scores. If you were only a few days late on a payment, it is doubtful that it will appear on your credit reports.
However, if payments are more than 30 days late, card companies will record them to credit bureaus as delinquent. If this happens to you, your credit score will suffer as a result.
If the payment is reported as being 60 or 90 days late, your credit score may suffer even more damage.
It can be difficult to keep track of payments, especially if you have many credit cards and loans. If you’re concerned about invoices getting lost in the mail, setting up automatic payments could be a good idea.
A Derogatory Mark
Derogatory marks on your credit reports show that you did not repay a debt in a timely manner. they will normally stay on your reports for seven to ten years.
That means a negative record on your credit report could have a long-term negative impact on your credit score. The good news is that the impact of a negative mark diminishes over time.
Furthermore, you may be able to have certain negative remarks removed from your credit reports. If you read a nasty remark on a report, make sure it’s true. If it isn’t, contact the credit bureaus to file a dispute.
Change In Credit Utilization Rate
Another key component in determining credit ratings is your credit utilization rate (how much of your available credit you use).
If you spent more than normal last month (due to a significant purchase, family vacation, or other reasons), your credit utilization rate will rise. The impact will vary depending on how much your credit-to-available-credit ratio increased.
Reduced Credit Limit
If your credit scores suffer as a result of a credit limit reduction, examine your utilization rate closely. To enhance your credit ratings, you may need to limit your credit card expenditures.
You could also consider applying for a balance transfer credit card. This could be beneficial on two fronts: It may help improve your overall credit limit, lowering your credit use rate.
Closing A Credit Card
When you cancel a credit card, your available credit is reduced. As a result, if you do not cut back on your spending, your credit usage ratio will rise.
Also, the older the account, the greater the impact on your average account age when you close it. Consider whether closing your oldest credit accounts is actually required.
Paying Off A Loan
Paying off a loan might have a negative impact on your credit ratings because it changes your credit mix. In general, a healthy combination of revolving credit (such as credit cards) and installment loans (such as mortgages and vehicle loans) is beneficial to your credit scores.
However, this does not imply that you should postpone repaying your loans just for the sake of your credit scores. You can still earn a great credit score even if you don’t have one of each sort of credit.