What Causes Credit Scores to Go Down?

Late or missed payment

One of the common ways for a credit score to drop precipitously is a late or missed payment. Credit companies are quick to change your credit score when they catch wind of any kind of missed or late payment. Missing or paying late on obligations like your mortgage, credit cards, vehicle, or other major payments are a sure-fire way to bring your score down. 

Change in credit utilization

If there has been a major change in your credit utilization (how much available credit is being used up) then you can expect your score to fluctuate some. For most credit agencies, a credit utilization rate of above 30% could have a negative effect on your credit score. This, of course, depends on the credit breakdown of the person as well. However, the simple fix is to simply try to bring the utilization rate down to get back into the optimal range. 

Paid off a loan

You may not have expected this to be on the list, but it’s true. Actually paying off a big loan can have negative effects on your credit, at least in the short-term. Why? Well, the simple answer is that your credit score is based on something called your “credit mix”. Your credit mix, essentially, is the mix of credit elements you have (like loans, credit cards, mortgages, etc.). 

When you pay off a loan, that balance is changed, so it may dip because of that. Don’t worry, though, your score will likely bounce right back over time. 

Closed a credit card/credit line 

This may seem like yet another potentially good thing that seems to have bad credit consequences. Shouldn’t paying off and closing a credit account be a good thing for your credit score overall? Well, there are a few reasons why this could happen. 

First, your credit mix could be altered, similarly to our prior example of paying off a loan. Additionally, closing out a long-standing credit line could affect your credit as well by altering the timeline of your credit history. Old accounts in good standing are generally reliable boosters of your score, so closing those accounts could have a negative consequence. 

Identity theft

If you haven’t done anything, then you may be the victim of identity theft. Identity theft is an increasingly destructive crime that can lead to people being unable to access what they need. Identity theft is way more common than you might think, and it’s important that you check for identity theft regularly. 

Reduced credit limit 

If your credit limit is reduced in any way, this could change your total credit mix. This would change your credit utilization ratio, thus lowering your credit score. Not to worry if this is you, there are concrete ways to get your credit score back up. 

Large purchases 

A very large purchase, as you could likely guess by now, will affect your score because it affects your credit utilization rate. If you suddenly jump from 30% credit utilization to 60% credit utilization, you can expect to see some sort of hit on your credit. 

Let New Credit Life Revive Your Credit! 

If any of the above has happened to you, you may be in need of some credit restoration help. New Credit Life would be happy to help you get your credit back on track and keep it that way. Give us a call today to learn more about our services!