Seeing your credit score drop is never a good feeling. However, being able to identify the right cause can enable you to take the right steps and get them back on track.
A sudden credit score drop can be due to a number of reasons. It is often overlooked that the actions you take can ding your credit score. The good thing is that many credit score drops can be easily recovered. Let’s take a look at the top reasons credit score dropped suddenly.
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Increase in Credit Utilization Ratio
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Missed a Credit Card Payment
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Paid Off Your Loan
Every person has their own credit limit, including a credit card limit and loan amount eligibility. When your credit utilization exceeds 40%, it puts you in a credit-hungry zone, which can negatively affect your credit score. Thus, if during a particular month, you have consumed almost all of your credit card limit or have made big purchases, you will see a sudden drop in your credit score. This can happen during festive seasons when people make multiple purchases that contribute a significant amount to the existing credit limit. This sudden increase can get reported to the credit bureau even if you clear your dues on time, and impact your credit score.
Another credit score decrease reasons is a missed credit card payment. Payment history is an important component of credit scores. According to FICO, it is one of the most important factors in the credit scoring model. In fact, it accounts for 35% of it. If you are just a few days late on a credit card payment, it might not show up on your credit reports. However, if a payment is overdue by more than 30 days, card issuers may report the account as delinquent to the credit bureaus. When this happens, your credit score might take a hit. In case the payment is 60-90days late, the credit score can fall even further.
It can be difficult to keep track when you have multiple loans or credit cards. To avoid being worried about the bills getting lost in the mail pile, enrol in automated payments. You can also hire a service for credit repair for late payments.
Paying off your credit card debt boosts your credit score, but paying off instalment debt, such as a student loan or mortgage, can have the opposite effect. It causes a drop in the credit score as it means you have one less credit card in your name. A mix of credit makes up 10% of the FICO credit score, as it is essential to show you can handle various types of debt. However, don’t let this deter you from paying your loans. Being free of debt improves your overall financial health.
With the help of a Miami credit repair service, you can ensure credit repair after bankruptcy and late payment. They can help take control of your financial future.
