According to Credit Karma This is Why Your Credit Can Drop!

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.

Possible Solution: Check your free TransUnion and Equifax credit reports at Credit Karma to investigate whether these derogatory marks actually belong on your report. If you find that these marks are errors, you always have the option to file a dispute.

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.

With that said, some scoring models (but not all) allow for rate shopping on auto or home loans without any additional damage.

 

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