You’ve seen the credit score sitting on your consumer credit report. You’re content with the score, but you have a nagging worry that it could drop at any second. What if you do something wrong and make the numbers on your report plummet?
Other than filing for personal bankruptcy, there are a few things that can make your credit score drop significantly. Learn about those specific things below.
High Credit Utilization Ratio
Your credit utilization ratio is the amount of your available credit that you’ve already used up (and of course, have yet to repay). You can get a better idea of your current credit utilization ratios by looking at the outstanding balances on your revolving credit accounts.
Say that you have multiple credit cards sitting in your wallet. All of the credit cards have outstanding debts that are close to the approved credit limits — you’re dangerously close to maxing some of these accounts out. This will inevitably result in a high credit utilization ratio. You will need to aggressively pay down your credit card debt to lower that ratio.
Or say that you needed to cover an emergency expense and you didn’t have enough savings available to do it. So, you applied for a line of credit loan through the website CreditFresh to help you manage the expense quickly. You withdrew the majority of the available credit in the line of credit, so now you have to repay portions of what you borrowed through the plan’s monthly billing cycle. The amount that you withdrew raised your ratio. That ratio won’t go down until your repayments are done.
This is one of the reasons why you should only apply for online line of credit loans in emergency situations. You don’t want to raise your credit utilization ratio for no good reason if you can help it.
Making a single late bill payment shouldn’t have much of an effect on your credit score, but being consistently late with your payments should. Some lenders won’t report a late payment to a credit bureau until your payment is 60-90 days past due, while others will do it after 30 days. Don’t take any chances. Try your best to cover your payments on time.
If you don’t have enough money to cover the entire payment by the deadline, try your best to make the minimum payment. While minimum payments will not do much to catch up with compounding interest, they will at least prevent creditors from labeling your payments as “late.”
Sometimes, it’s not your fault that your credit score is low! It has nothing to do with your personal financial decisions — it has to do with someone else’s. You could become a victim of identity theft, where someone else uses your personal information to impersonate you and open up various financial accounts. Their fraudulent behavior, unfortunately, can have a serious impact on your credit score.
If you think that you’ve become a victim of identity theft and financial fraud, you should take action right away. See what fraudulent accounts are listed on your credit report. Contact the account providers and discuss the problem with their fraud departments. Contact various credit bureaus to report the problem and ask them to place fraud alerts on your relevant accounts. You can also file an identity theft report with the Federal Trade Commission.
A credit score drop isn’t permanent. Even if you deal with any of these score-dropping problems, you have the power to fix them. You can put the effort in and bring your score back up!