Credit score is the most important element for financial transactions. The higher the credit score, the more credits you can get or you may have higher credit card limits. Moreover, the credit score affects the interest rate of the loans. The higher the credit score, the lower the loan interest rate. The low credit score is based on the factors affecting the credit score. These elements that are taken into account when calculating the credit score are listed in the credit reports. According to this information, the question ‘why my credit score is low’ can be answered by evaluating two situations.
Why is new my credit score falling?
First situation; newly created credit score. Creating a credit score for the first time is a disadvantage compared to having a credit score for many years. Because, when the main factors that make up the credit score are examined, it is a long time before some factors affect the credit score positively. Your first credit score occurs within 6 months. If you pay regularly during and after this period, this will have a positive effect on your credit score. If you have received 30% of your total available credit as a credit, this will also positively affect your credit score. Even though you have done these, If you think ‘why my credit score is lower than I expected’, it is due to other factors affecting the credit score. The length of the credit history or having a new credit account affects the credit score by 10%. In addition, the credit mix has a significant impact on the credit score. Customers with uniform credit accounts are not preferred by lenders. Having more than one type of loan creates the idea that you have a better financing power for lenders. However, based on this information, do not try to generate a credit mix as soon as possible. If you have hard account inquiries within a short time, this will negatively affect your credit score.
Why does my credit score drop?
The second group; people whom have long-term credit score looking for an answer to the question ‘Why is my credit score low?’. First of all, these people should review their credit reports and follow their account movements when the credit score decreases. If you’ve reviewed your credit report and didn’t notice why it has dropped, it may be one or more of the following 7 items that cause your credit score to decline;
- Missing or late payments;
Unpaid or incomplete payment of a loan debt adversely affects the credit score. Even, the payments made constitute 35% of the credit score. Making a payment late rather than not making a payment lowers fewer credit points. Therefore, you must pay even if it is not on time. If remain how late for you make a payment, your credit score declines so much.
- An account has gone into arrears;
If you think ‘why my credit score has dropped so much’, this may be the reason. Because when you experience such a situation, you have for not paid for several months so your lender thinks that you will no longer pay and the lender terminates the agreement. After the lender terminates the agreement, the lender may proceed further to collect the debt. This is reflected in your credit report and lowers your credit score.
- A spike in how much credit you use;
Use of credit indicates what percentage of your total credit balance you are using. Having a credit card with little or no use will adversely affect your credit score. It gives the impression that you don’t have the power to manage your credits. When you use the high limit ‘why my credit score fell’ you don’t think about it. Lenders think that you don’t have the amount to pay for the new loan they give you and that you don’t manage your money well. Credit usage rate should not exceed 30%.
- Settling a financial agreement in court;
If you are issued with a County Court Judgement (CCJ) or declare yourself legally bankrupt or an IVA (Individual Voluntary Arrangement) it can significantly harm your score. When you experience these events, you carry a high credit risk to the lenders.
- Opening a new line of credit;
When you receive a new credit, you may be surprised that your credit score has dropped. When you ask ‘Why did my credit score drop?’, you will find 2 answers;
- When you apply for a loan, there may be a hard inquiry by the lenders. In this case, your credit score will decrease. If you apply for more than one credit, your credit score will be reduced further.
- When you open a new account, the average age of your credit accounts will decrease. One of the credit score calculation criteria is the length of credit history. Therefore, a newly opened account will cause your score to drop in the first place. However, if you do well in situations that affect other credit points, the account you open as time goes on may increase your credit score.
- Closing an old account;
The answer to the question ‘why did my credit score drop’ above, also applies to this item. Even closing an old collection account will result in a lower credit score.
- Moving address regularly;
For lenders, the most important thing is stability. If you move regularly, you carry credit risk in the eyes of lenders. This reduces your credit score.
Should I be worried that my credit score has changed?
If your credit score has decreased slightly, it would be reasonable to review your credit reports for a few months and determine why. Your credit score has not declined permanently, so don’t worry.
If your credit score is too low, ‘Why did my credit score drop?’ If there is a mistake made instead of worrying, contact the credit reference agency to correct it.