Why Did My Credit Score Go Down & How Can I Fix It?

Why Did My Credit Score Go Down & How Can I Fix It?

Reading Time: 6 minutes

Have you ever seen that episode of Black Mirror where the number of followers you have on social media determined whether you could purchase a car or be accepted into a prestigious apartment complex? This is essentially how credit scores work. 

 

A credit score can help you get a loan, buy a car, or rent a condo. If you have poor credit, this could close a lot of doors for you and affect your financial freedom. 

 

Maintaining good financial standing is no easy feat. The slightest dip can affect you in unforeseen ways. What’s worse, you might be scratching your head in confusion over why your score dropped and what you can do to boost it back up.  

 

Let’s go through some factors as to why your credit score has dropped and what you can do to repair your score. Don’t fret, while the idea of a poor credit score may seem scary, you are in control of it and this article will help you understand why and how. 

 

What are the Reasons Why Your Credit Score Dropped? 

You Missed a Payment/Are Late on a Payment

Life gets in the way. While you are pretty consistent when it comes to making your payments on time, there are some months where you either forget because you’re so busy or other financial obligations require you to skip a payment. This can cause a dip in your credit score as late payments make up a large portion of your credit score. 

Your Credit Card Limit Was Lowered

Credit card companies reserve the right to lower your credit line, especially if you’ve made a habit of being late on payments. Something like this can explain the drop in your credit score as it will increase your debt-to-credit ratio. 

It’s recommended to keep this to 30% of your credit limit and under. 

You’ve Closed a Credit Card Recently why does credit score drop

While you may have cut up a card and said that you were done with your addiction to shopping, closing an account doesn’t always work in your favor. It’s an incorrect state of mind to think that closing a credit card will benefit you. 

 

This may sound crazy, but the best thing to do is to pay off your credit card entirely and keep the account open. Put your card in a drawer or use it very sparingly. 

Did You Apply for New Credit?

If you’ve applied for a new credit card, a home loan, or any sort of loan, this can cause your credit score to drop. It’s unfortunate, but it happens. 

 

When a card issuer assesses your credit report, this is known as a “hard pull.” Unfortunately, this can lead to a slight drop in your credit score, whether you are approved or not for the credit card.

Made a Large Purchase

While you are given a maximum amount on your credit line, it’s never good to max out your credit card or come close to it. Especially if you’ve made a single large purchase. 

 

This shows that you are not utilizing your card properly and can sometimes communicate to credit bureaus that you have no intention of paying your credit card off or it could be difficult to pay off in a timely manner. 

Identify Theft Can Hurt Your Score

While you may think to yourself ‘I didn’t make these purchases, someone else did’, you could still end up paying for these fraudulent charges. Identity theft drops your credit score. Regularly check your account regularly to ensure all of the purchases on your card was actually made by you. 

Did You Pay Off a Loan?

I know what you’re thinking. You just paid off a loan early. You accomplished a longtime goal. Job well done! You no longer have to worry about holding the weight of that burden on your shoulders. Something like this can cause your credit score to drop. 

Credit Report Errors

In the end, people and technology are flawed. Mistakes happen. If an error occurs, even when it’s ultimately not your doing, your credit score can be negatively impacted. It’s frustrating, especially when you have been doing so well in maintaining a good credit standing. 

 

Paying an installment loan off early won’t necessarily improve your credit score, and keeping it open for the life of the loan may be a better strategy. 

 

credit dropped

How Can You Raise Your Credit? 

So, your credit score is not where you envisioned it would be. As we said before, there is no reason to panic. Do not reserve yourself to thinking that you will always be at this score for the rest of your life. 

 

No brand new car. No nice house in the suburbs. You can raise your credit score, and in this section, we will be going over how to do just that because it is possible. 

Make On-Time Payments

This point is a little bit of ‘hitting the nail on the head,’ but if it wasn’t obvious already, you should try your best to make your payments on time everytime. Even if you pay $5 more than the minimum and go at a steady pace for a while, it is better to make your payments on time instead of letting your payments build up.  

Don’t Use Your Credit Card Too Much

The idea of a credit card is tempting. You don’t have enough money in your bank account for those new pair of shoes, but you have room on your credit card. 

 

So, you get the shoes. Then you get a jacket. Then you pay for a fancy meal out with friends. 

 

Overusing your card on a very consistent basis is not good, so make sure you are aware of how often you swipe that card. 

Don’t Close Your Credit Cards

As mentioned before, it may seem like a good idea to close a credit card and not tempt yourself. You are doing more harm than good this way. Keep your credit card open and be mindful of when you should and when you shouldn’t use it. 

Raise Red Flags on Credit Report Errors

If you see something on your credit report that doesn’t look right, don’t let it just sit there and fester. Dispute this error before it can affect your credit score too badly. 

changes in credit scoreDon’t Apply for a Loan 

While you are trying to raise your credit score, do not apply for a loan. This may seem like a viable solution for helping you escape your credit card debt, but you will drop your score by doing so. While you are looking to boost your score and pay off debts, hold off on any loans.  

Request A Credit Line Increase

As mentioned earlier, maxing out your credit card is no bueno. You may feel like requesting a credit line increase is tempting, but you may want to take advantage of the opportunity. By doing so, your credit card balance will be further away from the maximum and not threatening to drop your score. 

Bring in a Credit Repair Company

When you feel like you are unsure of how to go about raising your credit score, then it’s time to bring in a credit repair company. These are the experts who do this for a living. 

 

While you may feel like you are out of options and your wheels are just spinning in place, a credit repair company will devise a customized solution to fit your exact needs and help you move forward. These experts will get you back on track and you can take a big sigh of relief.

 

When it comes to improving your credit score, remember that it is not a sprint, but a marathon. It will take some time to see results, which could be discouraging, but should actually be promising. 

 

You should know that while you may not see changes right away, you are taking the right steps that will pay off in the end. With the help of the tips listed above, along with a credit repair company, you will be on your way to a fixed credit score and leaving bad credit behind.

How Do Banks Control & Monitor Credit Limits?

How Do Banks Control & Monitor Credit Limits?

Reading Time: 5 minutes

When your new credit comes in the mail you’re given a paper listing your credit limit. Every so often, if you’re a good borrower, you can increase your credit limit. However, have you ever wondered how this credit limit is even decided?

 

The method used by credit card companies to determine your credit limit is called underwriting. Underwriting works via mathematical formulas besides testing and analysis. But, the exact details of how this works is kept tightly under wraps by each institution since it’s how these companies make their money.

 

In this article, we do our best to shed some light on credit limits, how they’re determined, and your credit limit is affected by your credit score.

 

What Is A Credit Limit?

Simply put, a credit limit is the maximum amount of money you can spend on your credit card. While a high limit allows you to purchase more expensive items, offers you more flexibility, and can improve your credit score, it can also get you into trouble easily if you get buried in credit card debt.

 

Remember:

 

How much of your credit you use determines a portion of your credit score. It’s wise to have more available credit than you’re using to keep your credit score high.

 

While most Americans have credit cards, few of them think much about their credit limit, which is one reason so many of them get into trouble with their credit cards. Fortunately, it’s easy today to get a handle on your credit limit with the many apps available that assist you in managing your credit cards.

 

If you don’t have a smartphone or prefer not to use an app to achieve this, you can use the card issuer’s website to get this helpful information. Most of these sites will give you your balance and your limit at a glance so you know exactly where you stand.

 

If you don’t have access to an app or a website, you should be able to find this information on your statement each month.

 

How Are Credit Limits Determined?

Stated by a credit repair company in Austin, when a company sets a credit limit, it’s a sign of how much they trust the borrower to pay back what they owe. If you’re given a high limit, it means the bank thinks you’re low risk and are likely to pay off your debt and make timely payments. You’re considered a good borrower.

 

However, if you don’t look like a low-risk borrower to the bank, they’ll give you a low limit to start. If you pay your debts responsibly, the banks or card issuer may raise your limit after a set time. After some time, you can also request to increase your credit limit, if need be.

The Role Of Credit History

A major determining factor in your credit limit is your credit history. When you apply for a credit card, the card issuer checks things like your annual income and your credit report to determine what your limit will be.

limited by credit score

 

When they look at your credit report, they factor in your repayment history, your credit history length, and how many credit accounts you have open. Open credit accounts include other credit cards, mortgages, student loans, auto loans, and personal loans.

 

Card issuers also look to see if you have any derogatory information on your credit report. Bad marks on your report could be things like bankruptcies, missed payments, late payments, tax liens, or accounts that have gone into collections.

Other Items That Factor In Your Credit Score

 

While the underwriting process is different depending on the company, many consider identical variables in determining your limit. Some items they consider are the credit limits on your other accounts and your work history.

 

Your debt to income ratio also plays a role. If you have a lengthy work history and low debt to income, you’ll be seen as low risk and most likely be given a higher limit.

 

If you apply for a card and don’t get the credit limit you were hoping for, it’s most likely something in your credit report that’s holding you back. That’s why it’s a good idea to check your report regularly to know where you stand and what you can do to improve your credit score.

 

How Do Credit Limits Affect Credit Scores?

While credit card limits affect how much purchasing power you have, they also directly impact your credit score. One of the ways it does this is mentioned above in your credit utilization ratio or known as debt to credit ratio. This ratio is important as it comprises 30% of your FICO credit score.

 

People with low credit limits get into trouble easily with credit utilization, which is why it’s best to strive for higher limits. If you have high credit utilization, it reflects poorly on your credit score.

 

However:

 

Remember that every credit report is different, and just because you brought your ratio down and it reflects positively on one report, it doesn’t mean it’ll do the same on another.

 

Still, it’s wise to keep your credit utilization ratio low when possible. How low? Well, many experts say under 30% is a good number to aim for.

 

A good way to increase your score and lower your credit utilization ratio is to ask for an increase in your credit limit but keep your card usage the same.

Monitoring Credit Limit

What About Going Over Limit?

We probably don’t have to tell you this, but going over your limit is a bad move. Going over the limit takes your credit utilization to over 100%, and that’s a bad place to be in.

 

Most items, your credit card company will just deny the transaction that puts you over your limit, however, some don’t. Some card issuers allow users to opt into an over the limit coverage whereby they pay a fee if they go over and the card issuer honors the transaction.

 

Still, even if you have this protection, it’s best not to go down that road.

 

Besides hurting your credit, going over the limit puts you at risk for having your limit decreased or your account closed by the card issuer. Also, being over the limit may cause your card issuer to increase your interest rate. So, avoid going over whatever you do.

 

It’s important to understand how credit limits work and how they impact your credit score. Equally important is staying on top of your credit score to know where you stand. There are many apps available right from your smartphone that let you access your credit score and show you where you need to improve.

 

Are you getting your phone out now?

 

 

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Credit Limits: Can Yours Be Reduced?

Credit Limits: Can Yours Be Reduced?

Reading Time: 4 minutes

Having your credit limit reduced is common and can even happen if you’ve been good with credit and made all your payments on time. When a creditor lowers your credit limit, it can negatively impact your credit score. However, you need to know that there are things you can do – by yourself and with the help of a credit repair company – when this happens to minimize the damage to your credit and to fix the problem

Why Would a Credit Limit be Reduced?

So, you received a message from your credit card company notifying you that your credit limit has been lowered. It happens all the time, and while it’s frustrating because it limits your purchasing power and harms your credit score, you don’t have to sit around and accept it.

Why Would a Bank Lower Your Credit Limit Anyway?

During times of financial crisis or recession, banks may evaluate outstanding risk, which is often unused credit. To minimize the risk to banks in uncertain economic times, the bank may choose to slash your credit limit in the event you decide to use your card more and wind up not being able to pay because of financial circumstances.

 

It’s important to remember that credit limits aren’t a right, nor are they guaranteed; a bank can reduce your credit limit at any time, and they don’t need to give you a reason. You did read the fine print when you signed up for your card, didn’t you?

 

Also keep in mind that the reduction of credit limits is usually made by an algorithm rather than a human being sitting down and assessing your financial health, payment history, and credit.

 

Another reason a bank or credit card company might lower your limit is because of ‘low usage.’ If you have a limit of $20,000 and you’re not using a fraction of that, the bank may alter your limit to reflect your usage pattern.

Does it Matter if Your Limit Is Lowered?

In a word: Yes.

 

When a bank lowers your credit limit, it immediately affects your buying power and the amount you’re allowed to borrow. Also, a reduced credit limit can affect your credit score by increasing your overall credit utilization. For example, let’s say you had a limit of $20,000 and only had a balance of $5,000.

 

You’re only using a quarter of your credit, which looks good on your credit report. However, if the bank suddenly slashes your credit limit to $10,000, now you’re at the half, which looks terrible and reflects poorly on your credit score.

 

Credit utilization accounts for 30 percent of your credit score, so it’s easy to see how a lowered credit limit can reduce your score.

 

Now, it’s important to remember that while a bank can reduce your credit limit for any reason, what they can’t do is cut it and then hit you with an over-the-limit fee if you’re currently above your new limit. The bank is required by law to give you at least 45 days from the time they notify you about your lowered threshold before assessing any fees.

 

What to do if Your Limit is Lowered

Most people assume there’s nothing they can do when they get notified that their credit limit has been lowered, but that’s not the case. The first thing you can do is to contact your creditor and ask to speak to a representative.

 

Most times the limit was lowered by a computer algorithm rather than a person, so talking to a live rep is an excellent way to get answers as to why this happened, whether it was an error, and if your old limit can be restored.

 

Remember:

 

To be polite when you call, and it never hurts to mention how long you’ve been a customer and never missed a payment if that’s the case.

 

If you’re new lowered limit has put your credit utilization in a bind, consider transferring the balance to a card with a higher limit. If you’ve been in the market for a new card, now is the time to go on the hunt to find one with zero percent interest for balance transfers.

 

Just keep in mind that opening new lines of credit can cause your credit score to take a hit too.

 

What you don’t want to do is to close out your old card to spite the bank because if you have a long credit history there, that’s going to reflect negatively on your credit score if you wipe out years of on-time payments. Also, closing out that account lowers the available credit you have to work with, so transfer the balance, and suck it up.

 

If you maintain good relations with that bank and continue to make on-time payments, there’s a good chance you can get your limit raised in the future if needed.

 

It’s also essential you monitor your credit reports when a limit gets lowered to see what kind of a hit you take. If your score does drop, you can take the necessary steps to build your credit score back up such as using your card for small purchases like Netflix or coffee and paying it off every month to keep the account active and in good standing.

 

Finally, paying off your balance quickly on the card that got hit with the lower limit goes a long way to bringing down your credit utilization and pointing your credit score in the right direction.

 

Having your credit limit lowered isn’t a reflection on you or your credit, so don’t it personally. These things happen to everyone; you have to be smart about how to handle it and roll with it until you can get yourself straightened around.

 

Make your payments on time and pay down your balances to ensure your credit score moves up. And keep in good standing with your bank that lowered your rating in the hopes it can be restored in the future.