Due to changing and developing living conditions, people’s need for loans is gradually increasing. Therefore, one of the most curious subjects has been credit score and has become one of the main topics where information is collected through internet search engines. People began to wonder how they could increase their credit points and learn about their credit points in order to get more credit or credit cards, to manage their money in the most ideal way, and they used various sources to get information about them. However, people who have lowered credit points before acquiring this information do not know why their credit score have decreased. There are many different factors that cause the credit score to decline.
Why does credit score drop?
There are several factors that lower your credit score. These factors are;
1.Your credit utilization increased,
2.A derogatory mark was added to your report,
3.You missed a payment on one of your credit accounts,
4.You paid off your student or car loan,
5.You closed an old credit account,
6.You recently applied for a new loan or credit card.
- Your credit utilization increased;
Credit usage shows how much of your total credit balance you have used within a certain period of time. Loan usage percentage is the data obtained by dividing your total credit balances into your total credit limits and multiplying by 100.
The factors that reduce your credit score vary according to the credit scoring system used. However, the increase in the amount of credit generally leads to a decrease in your credit score. The use of credit indicates how responsibly you use the credit you receive to creditors and is therefore very important. Most experts advise you to keep your loan usage percentage at 30% or less. When the credit usage percentage exceeds 30%, it is accepted as irresponsible credit behavior and causes the credit rating to fall.
- A derogatory mark was added to your report;
If you’ve experienced a major drop in your credit score, it’s because of a derogatory mark could be the culprit. Derogatory items may include;
- Civil judgments,
- Tax liens.
If you see one of these elements in your credit reports, you should deal with it as soon as possible because these factors will significantly reduce your credit score. In July 2017, the three credit reference agencies abolished half of all tax debts and almost all legal decisions contained in consumer credit reports, but it is still important to pay attention to these issues.
- You missed a payment on one of your credit accounts;
Late payment for your credit card, mortgage, student loans or credit will both reduce your credit score and adversely affect your overall credit health. Credit score show creditors whether you have paid on time. Therefore, if you pay late even once, lenders will think that you will not pay back and become a risky customer.
- You paid off your student or car loan;
Making a good mix of different types of loans and keeping the number of open credit accounts at an appropriate level means that you can manage your debt with another debt.
- You closed an old credit account;
Closing an old credit card account will lower your credit score. This is because the age of your credit history is used to calculate your credit score. For this reason, many users are afraid of credit card balance transfers. However, even if the credit card balance transfer reduces your credit score in the first place, your credit score increases again if you make payments regularly.
- You recently applied for a new loan or credit card;
This will not be a problem if you have recently made a single application for a new credit card or loan. However, if you have applied more than once, this will make you look desperate for the loan and will not leave a good impression on the creditors.
All of these things can surprisingly cause your credit score to drop. All of these things can surprisingly cause your credit score to drop. However, not all factors have the same effect. Some of these factors lower your credit score very much, while others have less impact than other factors. As a result, all factors require consistent financial responsibility. If you make payments on time and keep your credit usage rate below 30%, you will avoid the risk of your credit score decreasing. You should also remember to pay attention to credit reports.