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
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.
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.
Don’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.