Potential Reasons Behind Credit Score Drop

We all are aware of the fact that credit score is a paramount financial factor. Regardless of its importance for obtaining services like personal loans, credit cards, and other, some people fail to manage it and face a substantial drop in their credit rating. Missing monthly bills or misusing credit are not the only reasons behind your credit drop but they are some unexpected factors as well which are explained in this blog for your awareness.

1. Closing A Credit Card:

If you have all of your credit concentrated on one credit card, you can hurt your credit. To avoid this, diversify your credit with multiple credit cards. Alongside, make sure to pay off your balances on time every month to avoid negative impact on your credit score. Be careful about closing your credit card and it is better to keep it open, even if you are not using it.

2. Identity Theft:

We are hearing news of huge data breach these days. So, if you find yourself facing credit drops you were not expecting, perhaps your information has been stolen. Data breach can happen by an attempt of accessing a company’s customer’s records in a fraudulent manner. These records often include the customer’s name, social security number, date of birth, home address, and driver’s license number.

If you suspect yourself as the victim of credit fraud, you can request an initial fraud alert be placed on your credit score for 90 days so that lenders must notify you when any new credit inquiries are made using your personal information. It also gives you the option to permanently remove your name from prescreened offers for 5 years.

3. Credit Checks:

At some point of life, you will likely need to undergo a credit check, whether it is for a bank loan, credit card, or any other purpose. If you are subjected to a soft credit check which is usually found in case of payday loans, it will not affect your credit report. However, if there occurs a hard credit check, then it can cause a small dip in your rating. This small drop could be potential loss if your rating is already low or on point. So, you must manage sound credit score so that no kind of credit check may leave an overall negative effect.

4. Foreclosures:

Foreclosure comes with many negative ramifications in your financial life, along with hurting your credit score. A lost home states that you are more of a credit risk and thus drops your score. In 2008/2009 when housing prices were impacted, the housing market recovered that millions of Americans learned their credit had been negatively impacted. So, it is wise to avoid mortgage that you may not be able to handle. For example, consider avoiding mortgage loans that require balloon payments and decide to live in a rented by sensing the need of the moment.

5. Credit Bureau Mistakes:

The rating agencies often make mistakes while recording people’s credit. One of the three major credit bureaus, Equifax, was hacked and exposed millions of people’s data in which they have negatively lower the wrong person’s credit score. The financial experts advise to take an advantage of a free yearly credit report check for any anomalies and ensure a bureau error doesn’t negatively affect your credit score.

The concluding point is that your credit will go up and down throughout the course of your financial life. As long as you are aware of the whereabouts behind those fluctuations, you can work to stabilize your credit score.