Did your credit score take a sudden plunge? Are you looking to bring it back on track? Whether it’s the missed payments, a recent instant loan application, closed credit cards, or high credit utilization ratio; the reasons for low credit score are manifold. Over the next few sections, we will take a closer look at them.
You Applied on Multiple Platforms
If you’re in the middle of a financial emergency, it is only likely to consider multiple options. Since you’re desperate for some quick cash, you’d want the best offer in line. Sadly, this very move can end up hurting your credit score.
How? Well, every time you apply for a loan to a new lending institution, a hard credit inquiry is performed. This is eventually reflected in your credit report. Now, when you apply at multiple platforms, more hard credit inquiries will be performed, and since these inquiries indicate credit hungry behavior, your credit score will immediately drop.
You Missed the Due Date
Payment history always has a vital impact on your credit score. If your credit card or personal loan installment is more than 30 days late, it will be reported to the credit bureau. Additionally, it’ll also be reflected in your credit report which will eventually cause your credit score to decline.
You Went on A Shopping Spree
Your credit score might also take a sudden plunge if you bought something expensive of late. This usually happens as the new purchase makes a dent in your debt utilization ratio. Ideally, your debts shouldn’t be more than 30% to 35% of your available credit limit. So, if your recent purchase results in a massive increase in debt, your credit score is likely to drop by a few points.
Your Credit Limit Was Reduced
If the credit limit on (even) one of your credit cards is reduced, it’ll end up taking a toll on your credit score. Yes, having a low credit limit has the same effect as splurging on an extravagant item. Since both results in high credit utilization ratio, it is only likely for your score to go down.
You Have Several Credit Accounts
If you have multiple credit accounts in the form of credit card, housing loan, personal loan (or any other form of loan), your credit health deserves immediate attention.
Remember, while checking your credit report, lenders will consider your outstanding balance along with the active credit accounts. So, if your debt to income ratio is high, it will naturally have a detrimental impact on your credit score.
You Recently Closed A Credit Card
Although credit cards have their fair share of cons, they are also an excellent tool to build credit score. This is especially true for old credit cards that have substantial credit history associated with them.
So, if you have an old credit card, think twice before getting it closed.
Your Credit Report Has an Error
Your credit score can also take a downturn due to erroneous reporting. So, check your credit report at least once a month to weed out inaccuracies (if any).
Now that you’re fully aware of the factors that might affect your credit score, work on the vulnerable spots to pull up your score in no time!