Credit has been used as a financial system for some time, in many cultures across history, as a way for individuals and institutions to make payments for items or services at times that suit them.
The credit system has changed massively over the years, and understanding how this system works is crucial in maintaining a good credit score.
Has your credit score changed for no apparent reason? Are you wondering; why did my credit score drop? We outline a few reasons why your credit score can drop and what you can do to fix it.
Large-scale adoption and use of technology across the world has meant that keeping track of credit is easier than ever, so just about anyone can get involved with the system and purchase items.
However, to keep good track of all the credit owed across the world, the introduction of credit scores was necessitated.
These are numbers that help to indicate how creditworthy an individual is, and whether companies or individuals should consider lending to them.
These scores are calculated based on several things, including your spending habits and how often you use credit.
So, as such, you may be wondering why it is that your own credit score has dropped! If so, read below, because we will explore some of the reasons your credit score may have dropped!
Why Did My Credit Score Drop?
There are numerous reasons why an individual may experience a drop in their credit score. So why don’t we take a look at some of these individual reasons?
Too Many Late Payments
Generally, you will want to avoid ever missing out on any payments that you owe.
Missing payments, or simply being late in paying something back can directly impact your credit score; however, simply missing or being late in paying back one payment is very unlikely to affect your credit score, and will only have a very minor impact overall.
Larger impacts on your credit score can instead be caused by missing too many payments. As well as this, the longer you take to pay back a payment, the more your credit score will be affected.
This is why it is important to make repayments as soon as you can, to avoid any impact on your credit score.
Using Too Much Credit
Balancing the amount of credit that you use is crucial to helping you to maintain a strong credit score.
Of course, using too much credit suggests to lenders that you are unable to manage your debts and that you cannot be trusted with any credit or being lent any money.
However, though you would think that the solution would be not to incur any debts or use any credit, this has the opposite effect!
Not using any credit does not give lenders any sense at all as to how you manage your debts and your credit, lowering your score!
You should aim only to use around 30% of your credit limit total.
Changing Your Address Too Regularly
Though this may seem like a strange reason for a credit score to drop, it actually makes sense. Lenders, of course, like to know that the person they are lending money to can be trusted and that the person will pay back their debt.
A person that moves from one address to another frequently would be seen by lenders as a person that is not yet in a stable position.
This would make them hesitant, as the more stable a person is, the less likely that circumstances outside of their control will affect their ability to pay back their debts.
If you have been moving from address to address a lot lately, this may directly impact your credit score.
However, this is not a permanent change to your credit score, so don’t be discouraged if you believe that your credit score has dropped for this reason!
Your Accounts Have Entered Into Arrears
Arrears, are a state in which lenders have decided that you are not trustworthy and will not soon be paying back any debts you owe.
This is a state in which the lender has decided to end the agreement you made, and has decided to take further action against you to receive the money they are owed!
This can be incredibly impactful on your overall credit score, and this impact can be very tough and arduous to recover from.
This is why it is crucial that you always keep a strong tracking system of your debts and the money you owe so that you can be sure you can pay it back!
Negative Financial Associations
Another thing that can directly impact your credit score is the financial behavior of those that are associated with your account…
Let’s say that you have opened a joint mortgage with another person.
If the other person that opened that mortgage with you acts irresponsibly with their own money and credit, this can directly impact your credit score, due to your direct association with them.
However, if you find that your financial associations have affected your credit score, you can reserve the right to have your financial associations removed, which will help your credit score to heal again.
However, you would need to improve that you are no longer financially associated with this person!
These are just a few reasons why your credit score may have dropped.
Though countless small details can directly impact your credit score, these are easily among the most common.
We hope this article on Why Did My Credit Score Drop will help you identify and fix some of the issues on your credit report.
- How To Start A Hot Shot Business  - November 24, 2022
- Basic Personal Finance Concepts  - November 22, 2022
- Where To Put Retirement Money After Retirement  - November 4, 2022