If you’ve seen a change in your credit score recently, you may be wondering why. There are a number of factors that contribute to a dropping credit score and it is important to know what may be causing it. When buying a home, it is important to maintain your credit and not make any major purchases that could impact your score. Here are the top five reasons for a drop in credit:
You made a late payment
Accounting for about 30% of your total rating, your payment history has a big impact on your credit score. If you make a loan or credit card payment more than one month after the due date, it could cause your credit score to drop. A payment of 60 to 90 days – or more – late will have an even greater impact on your score.
You made a large purchase
Your credit utilization ratio can have a large impact on your credit score. Your ratio is how much of your credit you use in relation to your total available credit. The goal is to have a lower ratio so if you’ve been using more of your available credit lately, you may see a drop in your score. If for any reason your credit limit is lowered, it can impact your credit utilization ratio and impact your score.
An account goes to collection
Timely payments on all accounts is an important part of your credit journey. Late payments on credit cards, loans, to medical facilities, student loans and utilities can be sent to a collection agency, which could in turn show up in your credit report.
You opened new line of credit
When you apply for a new credit, you are giving lenders the permission to access a copy of your credit report, which is known as a hard inquiry on your credit. If your credit report indicates you’ve applied for multiple new credit lines in a short period of time, your credit score may be impacted.
You closed a credit line
Closing a card means losing available credit, which could increase your credit utilization ratio. As a result, your credit score may drop. If closing a card helps you stop spending, it may be a good idea. Otherwise, it is usually wise to keep lines of credit open. The length of time you’ve had accounts open shows that you have a solid payment history, so that could be another reason to keep that card you’ve had awhile open if you are using it wisely.