Many people are are wondering why their credit scores are dropping at a drastic rate. You may be doing things such as paying off auto loans, credit cards, and even making credit card payments well above the minimum due. So, this drop seems really unfair, doesn’t it?
You first want to retrieve your credit reports from the three main bureaus: Equifax, TransUnion, and Experian. You can obtain and download these reports from: AnnualCreditReport.com These reports are now available weekly, for free until April 2021! Every month millions of data are retrieved by credit bureaus to be posted. The items in your report should be accurate but sometimes errors can be found. You should check for things such as: a misspelled name, a mixed-up account in the lenders’ records, a suffix such as “junior” that should be “senior” and other items that could be a mix up with someone else’s data on your report. By getting all three reports you will be able to see the discrepancies faster.
The bureaus do not have all the same information. They compete for business both into and out of their files. Some lenders may only be reporting to one of the lenders and you may find that you have very different credit scores from each reporting agency. Make sure to dispute anything that you do not recognize as yours, that is more than seven years old, or if something is missing. The best way to dispute is by sending them a letter through certified mail, so that you know an actual person is reading your dispute and you can verify that they received your letter. Since they are in competition with each other, if that data is incorrect, that is not a good competitive business for you.
High Balances
If you are making the above minimum payment on a number of cards which you are carrying balances, the interest being charged is making your balance go up which is causing you to lose points. You should be keeping your credit card balances below 30% of your credit limit. If you have multiple cards, don’t focus on just paying off one. The card with a high balance will still effect your credit score regardless if they other(s) are paid off.
Accounts not appearing on report
Some lenders don’t report to every bureau every month. It costs the lender money to report to the bureaus that you have paid a bill. Auto lenders are quick to repossess a vehicle if you miss a payment but might find little advantage in reporting the paid-off loan instantly. It may take a three-month period for that good news to get published! It’s unfair!
Closed Credit Card Accounts
If you have paid off credit cards and then closed the accounts, the utilization points in your score will have gone down because you have lost the available credit from those cards. This is a reason why it is important to not close accounts if you can prevent from doing so. Your credit limits are tied directly to your credit utilization ratio, which counts for 30% of your overall FICO score. You should try to keep credit cards open, whether you are using them or not, unless you are being charged a large fee for their use. One tip I can suggest: If you have two cards from the same bank issuer, you should ask to have the closed account credit limit added to your remaining opening account. This will keep the utilization factor low while saving you an annual fee.
Your credit history has gotten shorter
If you have recently closed any other accounts, it could have impacted your credit history. Your credit history is how long you have had credit being reported in your name. In credit reporting, the older the better. This makes it more difficult for young people to build up their scores. It is useful to know that some scoring models only count your open accounts in this calculation.
What affects your credit score?
Here is a brief FICO score primer:
The five basic components in order of importance:
Payment history (35 percent)
Credit utilization (30 percent)
Length of credit history (15 percent)
Credit mix (10 percent)
New credit (10 percent)
Credit mix
While the car payments aren’t a factor in utilization, they have a direct impact on the credit mix portion of your score. Lenders like to see that borrowers can handle both revolving credit (credit cards, etc.) and installment debt (car notes, mortgages, etc.) on a monthly basis. Once your car notes were paid off, you lost those points. You still have your good payment history on those notes and that history will stay on your credit reports for 10 years. But credit cards alone will not do much for you in the credit mix department.
New credit
Having hard inquiries over the past couple of years could negatively impact your credit score but only in short term. If you have applied for credit that you did not receive that will hurt you since you would not have the new available credit credit to balance out the impact of that inquiry. It is important to have a fairly good idea that you will be accepted for credit before you apply.
If you have questions or concerns about your credit report use our online form to contact us. We can answer your questions and see if you might have a case.