1. You Have Late or Missed Payments
Your payment history is the most important part of your credit score, accounting for 40% of your FICO® Score☉ (the most widely used credit scoring model). Even one late or missed payment can have a negative impact on your credit scores, so it's important to make sure you make all your payments on time.
If you are more than 30 days past due on a payment, credit issuers will report the delinquency to at least one of the three major credit bureaus, likely resulting in a drop in your score. If you're payments become 60 or 90 days past due, the effect on your score will be even greater.
If these delinquencies are not paid, the credit issuer may send your debt to a collection agency, and a record of your collection account will be recorded on your credit report. Records of your late and missed payments are stored in your credit file for seven years, so be sure to make all your payments on time to avoid any damage to your score.
Whenever you apply for a new line of credit, lenders will request a copy of your credit history to determine your creditworthiness. Each time you authorize someone other than yourself, such as a lender, to check your credit history, a hard inquiry is recorded on your credit report and has the potential to affect your score for up to two years.
As your credit profile matures, it is natural to accumulate a few hard inquiries. But if you apply for too much credit in a short period of time, it can impact your score and change how lenders consider you for new credit.
Depending on how many inquiries you already have, a new hard inquiry could cause your score to drop for a short period of time. As long as you don't continue to apply for new credit, the effect on your credit score should disappear in about one year.
Maxing out your credit card to buy a fancy TV could easily make your credit score drop. Depending on your card's credit limit, making a large purchase can increase your credit utilization ratio, the second most important factor in calculating your credit scores. An increased credit utilization ratio can indicate to lenders that you are overextended and not in a place to take on new debt.
Your credit utilization ratio is calculated by adding all your credit card balances at any given time and dividing that by your total revolving credit limit. For example, if you typically charge about $1,000 each month, and your total credit limit across all your cards is $10,000, your utilization ratio is 10%.
You should aim to keep your monthly credit utilization ratio low and for the best scores, below 10%. So, if you're total credit limit is $10,000, keep your balances below $1,000.
Similar to maxing out your credit cards, having your credit limit lowered can increase your credit utilization ratio and negatively affect your credit scores. Imagine, as in the example above, your total credit limit was $10,000 and you carried a balance of $3,000—your utilization ratio would be 30%. If your limit was lowered to $6,000, but your balance remained the same, your utilization ratio would change to 50%. This could cause your credit score to drop.
Regardless of whether your credit limits are shrinking or your balance is increasing, keeping an eye on your credit utilization ratio will help you better understand your fluctuating credit score.
If you're thinking about closing a credit card you don't use, you may want to think twice. Closing a credit card account will not only increase your utilization ratio, but it may also reduce the length of your credit history—both of which can impact your FICO® Score.
When you close a credit card, that credit limit is removed from your overall utilization ratio, which as mentioned, has the potential to lower your scores.
Closing a credit card account, you have had for some time can also shorten your average credit age, and that will factor into your credit score. The length of your credit history counts for 15% of your FICO® Score, so a longer history is better for your scores. Keep in mind, however, that if your account is closed in good standing (meaning you made all your payments on time), it could remain on your credit report for up to 10 years, reducing the effect on your credit scores.
Unless the credit card has a high annual fee that you cannot afford or it tempts you to spend more than you should, it doesn't hurt to keep the account open to maintain your credit limit and length of credit history.
Regularly checking your credit reports is one of the best ways to ensure no inaccurate information shows up in your file. Although it's rare, mistakes happen, and it is possible that incorrect information in your credit report is causing your scores to drop.
If something in your report is inaccurate, it could be a result of a lender accidentally reporting the wrong information.
It could also be a sign that you have fallen victim to identity fraud. If you see something you believe is inaccurate, you should have
AFS Credit Restoration dispute the information with all three credit bureaus as soon as possible.
I hope this information helps you!
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