Friday, February 1, 2013

Why is Your Credit Score Dropping?

Sadly, your credit standing may step down one level without known reason. This can be acceptable if the credit score is having only small dips. There would not be a big difference as compared to the one previously checked. However, when the sudden drops are like earth-shattering with a magnitude of six, you have the right to worry. The BIG question is, "why is your credit score dropping?"

Is there something wrong with the computation and verification of your credit score? In this article, we will try to give you clarity on this.

Common Reasons Why credit Scores Drop

1. Poor Payment History Connected

Your good credit points might be lost because of your payment history which contributes to 35% of your credit score. Credit bureaus consider the last 12 months of your payment history in calculating for your credit score.

If you have incurred any missed payment toward a loan, credit agencies will make your score drop. Another is when you send your payment late for your credit call bills and when you had a large expenditure that ate up your credit limit. This latter one may sound unfair but it's true. Credit agencies eye on your purchases just before you pay up for all of them.

2. Opening of a New Financial Account

The second cause of a lowered credit score is the act of applying for a new financial account. This one is worth 10% of your credit score. So closing your bank account which had bank credit history and opening up a new one will not make your name as fresh and good as you wish it will be.

This also holds true when you have discontinued your use of a credit card or when you maintain an account with no or minimal balance.

3. Outstanding Credits

Even if you are paying your debts consistently to creditors, your credit score is still punished by the outstanding credits you own. In the credit scoring system, the outstanding credits make up 55%. That's a considerably big percentage share right there.

To balance it off, you can have a shorter time for credit as length or duration of the credit accounts for 15% of the calculation. Moreover, you have to have lesser amount of money being credit. This accounts for the remaining 10% of the whole.

End Notes

Before you get an 'O' on your mouth for being caught surprised with learning about a low credit score, find out if these three reasons are applicable to your case. If any of them is encountered, you can continue trusting the credit score system for its calculation. You can also ask the credit bureau to show you recorded proof of faults you've made that brought to the low credit score.

Once the reasons are identified, you can either keep silent about it and then move on improving your credit score in the future. Else, don't be shy or afraid to escalate the issues or errors up to their attention. Miscalculation of your credit score (and anyone else's) should not be ignored. Find ways to dispute the errors and have the correct scoring be reflected on your profile. Whatever the case is, you must aim for a credit-worthy score.