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    Why Did My Credit Score Suddenly Drop?

    Your credit score rises and falls naturally over time according to your borrowing and payment behavior - but should you be worried about a big drop in your numbers?

    If you’ve checked your score recently and noticed a dip of 20 points or more, you may be worried about the implications this may have the next time you apply for a loan or other financing products.

    Let’s take a closer look at scores, how they are calculated, what can cause them to drop, and how you can keep yours as high as possible.

    8 Possible Reasons For A Credit Drop

    There are many factors that go into calculating your creditworthiness.

    If any of them change suddenly you will definitely see a drop in your FICO or VantageScore numbers.

    Here are 8 common causes of a dip in your score.

    1. You missed a payment.

    Your payment history is the single most important factor in your score. 

    2. You spent a large amount on your credit card.

    The second-biggest factor in your score is credit utilization (how much of your limit you’re currently using).

    If this amount shoots up suddenly, you’ll see a drop in your score. The ideal credit utilization percentage is 30% or less.

    3. You closed an account.

    Credit history also plays an important role in determining your score.

    If you close a credit card account that you’ve had for many years, you’ll lose points almost immediately.

    4. You applied for a lot of credit recently.

    Recent credit applications can knock a few points off your credit score - especially if the credit provider performs a hard check each time.

    5. There’s an error on your credit report.

    Sometimes credit providers make mistakes and report inaccurate late payments and other negative information to the credit bureaus.

    6. You cosigned for someone.

    If you cosign for someone else’s application and they are late in paying or default on a loan, your score will suffer.

    As a cosigner it’s always good to check in with the person you signed for and make sure that payments are going according to plan.

    7. Someone used your credit card without permission.

    This could either be a relative who swiped your card without your knowledge or a service you signed up for that has been charging your card on a continuous basis.

    8. You are a victim of identity theft or fraud.

    Sudden, large, and unexplained charges on your credit card can cause your utilization ratio to skyrocket and your score will fall accordingly.

    If you suspect that fraudulent activity has taken place on any of your accounts, don’t delay.

    Contact your card issuer immediately to cancel the card and let the credit bureaus know so that they can place a fraud alert on your account or even freeze your score temporarily.

    Most drops in your credit score are due to your own patterns of payment and credit usage.

    Here are some ways you can avoid them.

    How To Avoid Sudden Credit Drops

    Keeping your credit score as high as possible can get you easy access to credit, lower APRs and smaller down payments. Here’s how.

    • Don’t miss a payment. If you feel that you’re unable to make a monthly payment, it’s best to contact your credit issuer ahead of time and ask for an extension.
    • Keep your utilization low. By using no more than 20%-30% of your limit you’ll keep your score high. You can achieve this by paying down your credit card debt or requesting a limit increase.
    • Keep your accounts open. You can pay down your credit cards completely and still keep them open. This will boost your credit history and give you a source of emergency funds - as long as you can resist the urge to use your cards.
    • Don’t apply for too much credit at once. Try to stagger your new credit applications so that you apply for each one a few months after the previous one.
    • Monitor your credit record. You can apply for a free annual credit check from Experian, TransUnion and Equifax respectively. 

    Factors Outside Of Your Control

    Maintaining a healthy credit score can be challenging when things happen that are simply outside of your control.

    As with all financial issues it’s the way you react to them that will make the biggest difference.

    • A sudden loss of income or unforeseen expenses. If you lose your job or have to pay a large medical bill or other essential expenses you may end up running up credit card debt. Your score will drop - but it will rise again as you pay down these debts.
    • A change in the credit bureaus’ score calculations. The three main credit bureaus each have their own method for calculating your credit score - and they change from time to time. You may see your score drop slightly as a result, but the effect will usually be temporary.

    It’s important to note that each bureau may give you a different score depending on what criteria they judge to be more important in calculating it.

    You’ll want to track the score that each bureau gives you over time instead of comparing the scores from different bureaus. 

    Tips For Staying Organized

    Most of the factors that determine your score definitely fall under your control.

    By managing your credit responsibly, you can help prevent drops in your creditworthiness.

    • Set a payment reminder. You can enter your credit card, loan, and mortgage due dates into your smartphone’s reminder app and set a recurring notification that will remind you to pay on time.
    • Set up autopay. You can arrange for the minimum payment on your credit accounts to be debited automatically from your bank account. Autopay is a great way to avoid late payments.
    • Create a monthly budget. Paying down your debt and making timely payments is easy when you have a budget in place. Once you’ve assigned a monthly amount to debt repayments, you’ll find it much easier to manage your credit accounts.

    Conclusion

    A sudden drop in your credit score can be worrying - but there are ways of avoiding it and raising your score after it takes a dip.

    Most of the time, a falling score can be remedied using good credit management.

    Paying your bills on time and paying down your debt - or increasing your limits - are some of the most important things any borrower can do.

    By applying the tips in this article you’ll be able to manage your credit repayments effectively and keep your credit score at a healthy level.

    You’ll benefit from access to credit, competitive APRs and many of the other perks that come with having good credit.