You’ve worked hard on your credit for months, possibly years. However, you’ve recently noticed it is taking a dive for the worst. There are five factors that make up your credit score: your payment history, the amount you owe, the types of credit you have, the age of your credit history, and credit inquiries. So, let’s discuss 3 top reasons your credit score dropped and how you can reverse it.
Life and mistakes happen. Whether you forgot to make a payment or there was an error in the company receiving the payment, being late can have drastic consequences. Your payment history is a major factor in calculating your credit score. Paying your bills on time shows you are a responsible consumer.
Your lender will not report your payment late until 30 days+. So, if you notice the payment isn’t posted, be sure to call them and get this corrected immediately. You may even get your late fee waived. One of the best things you can do is set up auto-pay for your account.
You Have Used Too Much Credit
Credit utilization is another important factor in calculating your credit score. The old rule used to be to use no more than 30 percent of your available credit. However, in recent updates, FICO suggests keeping this between 10 to 20 percent. Using over 20 percent indicates you may be irresponsible with your money or have trouble paying it back. With that said, you still want to use your credit to show you can manage your credit responsibly.
If you are over 20 percent or have maxed your credit cards, you can always contact the lender to see about increasing your credit line. This lowers your utilization. Of course, simply paying it back down works as well!
Your Credit Age Decreased
Your credit score decreased, you go online and noticed an account has closed. Well, if this was one of your older credit lines, it has now decreased the average age of your credit. The average age of your credit is the total number of months you’ve had your accounts divided by the total number of accounts. A longer credit history shows you are responsible. A few reasons your credit age could decrease include:
• You have closed a credit account (possibly a high APR credit card)
• A credit line is paid off and you don’t use it. So, the lender closes it for you.
• You’ve opened a few new accounts
These may seem like simple tips. However, keeping these three reasons in the front of your mind can keep your credit score from decreasing.