Credit Karma ran a publication recently that talks about why
your credit report may drop in points when you may have done nothing to make it
so. This is what they have to say.
My credit score dropped 50 points?!”
Sometimes your credit
score shocks you by dropping seemingly for no reason. This can be pretty
discouraging and frustrating if you can't pinpoint a cause. Although Credit
Karma doesn’t calculate your credit scores, we can point out some of the factors that can affect your score. And you may be able to
trace a drop in your score to one of these factors.
1. Open Credit Card Utilization
Carrying a significant
amount of debt on your credit cards could be one reason why your score dropped.
Your credit card utilization rate
is a snapshot of the total debt you have on your credit cards divided by your
total credit limit. If you're relying too much on credit, a lender could view
that as a bad sign.
Possible
Solution: You can try paying
down debt, taking on less debt in the future or increasing your available
credit on your credit cards by requesting a credit limit increase from your
card issuer. Additionally, if you have been paying your credit cards
responsibly, consider opening a new credit card, which will also increase your total
available credit. All of these actions will effectively lower your credit
utilization rate. You can also check on your current utilization by connecting your financial accounts.
2. Percent of On-Time Payments
Since creditors are
trying to judge how likely you are to pay back your debt, reliability is
important to them. If you miss even a single payment, your
score could take a hit. The relative impact could be especially high if you've
never missed a payment before.
Possible
Solution: If you're not sure
which payment you missed, open up your full credit reports. Click
on the "Accounts" tab, and expand each account to see your 48-month
payment history.
Moving forward, you
can set up an automatic withdrawal from your bank account, or link your
financial accounts and turn on bill reminders to help avoid missing any future payments.
Continue monitoring your credit report as well to ensure all of your future
payments are being reported as on-time.
3. Number of Derogatory Marks
If you experienced a
major drop in your credit score, a derogatory mark could be
to blame. Tax liens, accounts going
into collections and
bankruptcies are among the most serious things that can happen to your credit
score. Since they represent major delinquencies, they can reflect poorly on
your ability to take care of your finances.
4. Average Age of Open Credit Lines
The longer you have
had credit accounts open, the more creditworthy you generally appear to
lenders. If you've closed an account recently, some scoring models won't
factor in your closed account when determining your credit age, so your credit
history may appear shortened and your score might drop. Opening a new account
could also lower the average age of your accounts.
Possible
Solution: Before opening or
closing an account, use Credit Karma's Credit Simulator to see how the action could potentially
affect your score, and be prepared for a change when you pay off a loan. If
you're not sure if you need to close an account, consider the pros and cons of doing so.
5. Total Accounts
While it's not the
most important part of your credit score, having a good mix of different types of credit and an appropriate number of open
accounts shows lenders that you have the experience to pay off debt
responsibly. If you've just paid off the only loan you have, your credit mix
might look a little less diverse to lenders. Similarly, if your total number of
accounts suddenly skyrockets or nosedives, that could indicate that you're
financially strapped and need credit or can't afford your existing credit
accounts.
Possible
Solution: Before you open or
close any accounts, you may want to check your credit report's
"Overview" tab, where you can see the distribution of your open and
closed accounts. Doing so will help you be aware of where you stand. If you're
thinking about opening up new credit cards, don't fall for every offer out
there - only open ones that you need.
6. Hard Credit Inquiries
Generally when you
apply for a new form of credit, whether it's a credit card, an auto loan or a
mortgage, a hard inquiry is placed on
your credit report. Normally, a single inquiry would initially only drop a few
points off of your score. However, if you have applied for several accounts in
a short period of time, you could appear desperate for credit and the damage
from those hard inquiries might add up.
Possible
Solution: To avoid unnecessary
inquiries, only apply for credit when you need (and can afford) it, and try to
focus on cards that you have a good chance of getting approved for. Credit
Karma shows you your estimated Approval Odds before you apply, so you can make
a more informed decision.
If you're looking for
a loan and need to rate shop, consider looking through consumer reviews to narrow down your choices. You can also
consider getting pre-qualified or pre-approved for credit, so you have a better
sense of what you'll be approved for before you apply. By doing your homework,
you may be able to avoid unnecessary hard inquiries.
Building Your Credit Knowledge
Credit scores often
seem like they're shrouded in a veil of mystery. Now that you know what might
have brought down your credit score, try your best to keep an eye on your credit health. Even though these
situations can't always be avoided, understanding their impact could help you
make more informed decisions.
Editorial Note: The
editorial content on this site is not provided by the bank or issuer. Opinions
expressed here are author's alone, not those of the bank or issuer, and have
not been reviewed, approved or otherwise endorsed by the bank or issuer. Credit
Karma may be compensated by companies mentioned through advertising, affiliate
programs or otherwise. It is this compensation that enables Credit Karma to
provide its members with services like free access to your credit scores and
free monitoring of credit and financial accounts at no charge.
Disclaimer: All
information posted to this site was accurate at the time of its initial
publication. Efforts have been made to keep the content up to date and
accurate. However, Credit Karma does not make any guarantees about the accuracy
or completeness of the information provided. For complete details of any
products mentioned, visit bank or issuer website.
One member of Credit
Karma said this;
Hello everyone Mr., Murdock, allow me to add my
2 cents here. Credit Karma and all the other credit tracking agencies are
not usually as accurate as getting your scores directly from the bureaus
themselves. Just for your FYI, if you pay off all of your debt at one
time, then yes your credit score will go down and I know this sounds crazy but
that's the reality of it. The credit people don't want you to pay off
everything at one time or you will be penalized by it. Instead you have
to pay things off slowly with a system.
This is something I have learned
while learning how to manipulate my credit scores. This is something I
have discovered along the way and I will share it with you. First, you
must subscribe to a good credit reporting agency like Privacy guard that will
give you "What if" scenarios and then and only then can you improve
your credit score. Paying the extra money for this service is well worth
the cost of improving your credit score. When you use the what if
scenario it will tell you if your score will go up or down based on how much
you pay on your debt. You have to do this with all three credit bureaus
in order to get the best possible scores from them.
It's all a game and
you just have to know how to play the game in order to win. I have used
this system to run all my scores above 800 by not paying off my credit cards
even though I had the means to do so. "Remember ladies and
Gentlemen" it's all about numbers and you have to know how to manipulate
the system in order to get the best possible scores from the credit bureaus.
I truly hope this information I have shared with you helps improve
your credit score. Try it, it really works and hit me back as I would
really like to hear your comments.
Member No. 2
commented;
Be more specific. I
just paid almost all of my credit card debt off and MY CREDIT SCORE FELL BY 50
POINTS!!!
Mr.,
Murdock, I beg to differ with your
statement. I had a lot of debt and came by the means to pay it off. I paid off
all of my cards and a couple loans that I had and my credit score went up 130
points in a month. I am now over 785 with only inquiries and average length of
credit holding me back, talking to a friend of mine in your case, your score
may take a small hit but will recover and increase in a month or two by paying
off all your debt at one time. My only debt left is my house and Truck.
Member No. 1 replied;
Ummm, I guess with
everyone complaining about Credit Karma seemed to have forgotten that it is a
free service and is meant to be a guide, not an end all be all. If you
don't like it then you should spend the money and get the credit tracker
memberships from one or more of the big three credit bureaus. I'm amazed
that people don't appreciate a place where you can look at your credit for no
cost and get a good idea of where you might have problems. It's free!!
Nothing that is free is going to be as good as something that you pay
for.
Mr. Murdock commented;
I do agree that having
your score drop due to paying off a mortgage is stupid, but I'm not a
banker. I find it strange though, that people are bothered by the Credit
Karma score being lower than the "big three" credit scores.
Since no financial institution I deal with uses Credit Karma to check for
credit score it really shouldn't make a difference. I've had them deny me
a loan because my score was too low, only to turn around and contact me within
a week to finance a loan through them identical to what I had requested but at
their convenience (I never accept those offers because they don't deserve my business
if that's how they want to treat me). I'm getting to where my debts are
all getting paid off, and anything I want, I will just pay cash for.
My opinion, Credit
Karma;
The credit information
found on Credit Karma should be used as a guide line, not as information that
is guaranteed by the credit bureau something
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