Picture this, it’s a beautiful day and Bam! Your credit score went down. So, why did my credit score drop? The answer may be more simple than you think.
The average FICO Score in the United States, which has been on an upward trajectory since 2016 with a four-point increase every year, reached its highest level ever at 711 this past October according to Experian data reports. This is significant because it’s almost double what was seen last year and marks one of the most notable spikes experienced by any metric tracked within this ten-year period.
Putting in the effort to build your credit score may be one of the smartest financial moves you can make. Your credit score is made up of many different parts and, usually, a small dip in your FICO rating isn’t anything to worry about. However, if the drop seems out-of-the-ordinary, then you might want to dig a little deeper into why this has happened because there may be several reasons for the dip. Let’s review just a few of the leading reasons why you would see a sudden drop in your credit score.
Why Did My Credit Score Drop?
You Applied for a New Credit Card
Applying for a new credit card is one of the top reasons why your credit score would suddenly take a dive, but don’t be quick to panic. You may have heard that card issuers pull your credit report when applying for a new account, and this is because they want to see how much of a risk you pose before lending out money. It’s called “hard inquiries” or “hard pulls” which temporarily lowers your FICO score by several points. The key word here is “temporarily.” When they happen in moderation, hard inquiries aren’t necessarily a negative thing. If you continue to pay down your cards by the due date, with no late payments, hard inquiries won’t stay on your credit report.
With so many cards to choose from, it can be hard to find the right one. That’s where preapproval or prequalification offers come in. They won’t guarantee that you’ll get approved for any specific credit card but they will give a good idea of whether or not this is something worth considering before applying for a new credit card.
Missing a credit card payment can have serious consequences for your credit score. 35% of the formula comes from payment history, so missing one will hurt your score almost immediately. Lenders and issuers care if you’ve paid on time in the past because it indicates risk level. They don’t want any surprises cropping up in the future, such as late fees, or worse yet, a bankruptcy filing.
Missing a payment on your credit card can drop your score by as much as 50 points for every missed payment. It might take years to bounce back from that if you continue to miss payments. According to FICO data, individuals with a fair credit score could see a 17-37 point drop for a missed payment. While those with very good to excellent credit could see a drop between 63-83 points. Those numbers only go up when missed payments lapse longer than 90 days. So stay on top of your payments, but not living outside of your means.
One of the best ways to improve your credit score is by keeping your balance low. Experts recommend using less than 30% of available funds on a card and not spending more than you can afford each month. Other experts have even suggested keeping your balance under 10% of your credit line. Obviously, if you’re making a big purchase like a car or a piece of fine jewelry, you’ll likely be utilizing well over 10-30% of your balance.
The key to not going into debt when making a large purchase is making sure you have enough income or money set aside to successfully make these payments. Carrying a high balance on your credit card may seem like an easy way out, but don’t let this be another mistake that winds up tanking your credit score in the long run.
Use Credit Repair Services in Los Angeles
So, the next time you find you’re asking yourself, “Why Did My Credit Score Drop?”, read these tips and see if American Credit can help you with credit repair. Negative information on your credit report can drive down your credit score. However, errors can be disputed. We employ a pre-litigation process to encourage creditors to report information correctly, which is more effective than sending a dispute letter. To learn more or receive a free credit consultation, call 855-213-1043 today.