Have you recently checked your credit score and found out that your credit score fell more than 50+ points in the last 30 days?
If your answer is yes, please don’t panic. I know it can be a devastating feeling to see a big drop in your credit score in a short period of time. It is even more frustrating if you are planning a big purchase soon such as buying a car or applying for a mortgage.
So Why Did You Credit Score Drop 50+ Points?
It can be easy to spot the reason behind the drop if you’ve had a recent negative item on your reports such as a late payment or a collection. However, there are instances that are not so obvious that could result in your credit score going in the wrong direction.
In this article, you are going to discover the most likely reasons why your credit score fell and a few steps that you can take to remedy the problem and get your credit score back up as soon as possible.
Factors Affecting Your Credit Score
As we mentioned in previous articles, there are 5 main factors that contribute to your credit score. The table below lists these 5 factors as well as the percentage weight they have towards your overall score.
Factors Affecting Credit Scores | Percentage (%) |
Payment history | 35% |
Amount owed | 30% |
Length of credit history | 15% |
Types of credit Mix | 10% |
New credit | 10% |
Now that we know the factors that contribute to the computation of your credit scores, let look at some of the possible reasons why your credit score may have dropped over 50+ in a short period of time.
Why Did My Credit Score Dropped 50+ Points?
1. You Had A Late Payment On Your Report
If you recently made a late payment, its not uncommon to see your credit score making a huge dip in a short period of time. As you can see from the table above, your “Payment History” accounts for the largest percentage of your overall credit score.
No creditor wants to do business with someone who doesn’t make their payments on time. This is why payment history carries so much weight. Those who have a good payment history are rewarded with better credit and those to make late payments are also rewarded with huge drops in their scores.
Remedy
If the late payment reported is accurate, there is very little you can do about it. You could try to do a goodwill letter and some lenders ‘may’ oblige and take off the late payment. However, depending on the circ*mstances, your chances of success with this method could below. Your best bet is to contact us and let us analyze your specific situation and recommend the best way forward.
On the other hand, if the late payment reported was an error, then you could simply dispute the error, with proof and have it removed from your report. Once it is removed, your scores will go back up shortly thereafter.
2. You Had A Big Increase In Your Credit Utilization
Credit utilization accounts for 30% of your overall credit score. And credit utilization simply means how much of your available credit you are using at the moment. It is recommended that you keep your utilization under 30% but for maximum benefit, we recommend under 10%.
Your credit score can drop big time if you carry a large balance on your credit cards. Note also that this is an average of all your ‘revolving credits’.
Let’s say for instance that you have 3 credit cards with a total credit limit of $10,000. And let’s also assume you made a big purchase of $5,500 for whatever reasons (could have been an emergency) and you were unable to pay off the balance, then your credit utilization would jump to 55%. This could result in your credit scores taking a nosedive.
Remedy
It is best to keep your credit utilization as low as possible. However, there are circ*mstances when you have no other choice but to use one of your credit cards. The only solution to this is to try and create an emergency fund so that if an emergency should arise, you don’t have to depend on your credit cards.
If that fails and you have to use the credit card, it is not the end of the world. Just try your best to pay down the balance as fast as possible and your scores will increase shortly afterward.
3. You Paid Off A Loan
This is ironic isn’t it? You are trying to clear your debts and eventually paid off that car loan that you had and instead of your scores going up, they took a nose dive in the wrong direction.
The reason why this happens is because you actually change your credit mix. Again, if you take a look at the table above you’ll realize that the different types of credit you have accounted for 10% of your overall score. So while paying off that car loan is a good thing, it also temporarily affect your credit in a negative way because you also decrease your total number of credit mix.
Remedy
It is always good to have a good mix of credit accounts for the maximum benefit on your credit score. However, that should not deter you from paying off outstanding debt.
Yes, it can be frustrating to see your scores drop after you’ve worked hard to pay off a loan. However, this drop is temporary and as long as everything else is in order, you should see your scores increasing very soon.
4. You Had A Recent Hard Inquiry
A hard inquiry or “hard pull,” is when a creditor pulls your credit to determine how much of a risk you pose to them before considering you for a credit line. This hard pull will stay on your credit report for two years and can temporarily bring down your credit score.
How much your scores drop will depend on whether or not you are on top of your game with the other factors that contribute to your score. (See the table above). For example, if you have a high credit utilization and you’ve missed a payment in the past then a hard inquiry can be more detrimental to you.
Remedy
Before you apply for any form of credit, make sure to analyze your credit report to see whether or not it is the best time to do so. In some cases, a hard inquiry may be beneficial to your credit score in the long run. One example is if you have a high credit utilization and you are applying for an unsecured loan to pay down your credit balance.
In this case, you’ll get have more credit mix and your overall credit utilization will go down making the hard inquiry worth the temporary drop in your scores. Outside of this scenario, it is best to see an expert before getting a hard pull on your credit report.
By the way, now is a GREAT time to tell you that if you have low or bad credit scores, we can help you. Our company Desired Life Credit Repair is committed to getting you results that you can rely on. With our proven track record, you can use our credit restoration services with confidence knowing that we will go above and beyond to help you improve your credit score.
We also specialize in getting derogatory remarks removed. So contact us by using the form below or give us a call at 954-709-2462 for a 100% free consultation so we can advise you on the best way forward.
5. You Closed An Account
Closing an account can affect your score negatively in multiple ways. Firstly, when you close a credit card, your overall available credit limit will decrease. This will automatically cause your credit utilization to increase even if your spending habits remain the same.
For example, let’s say you have 3 credit cards. Card 1 has a limit of $3,000, card 2 hard a limit of $5,000, and card 3 has a limit of $2,000. This means your total credit limit is $10,000. Let’s say you normally carry a balance of $2,500 in total among all 3 cards at the end of the month. This means that your credit utilization will be 25%.
However, if you close your account of $3,000 now your total credit limit will fall to $7,000. If your spending habits remain the same and you spend $2,500 per month, your credit utilization will now increase from 20% to 35% which will result in a drop in your score.
Secondly, closing an account will decrease the average length of your credit history. If you check the table above, you’ll see that this factor accounts for 15% of your overall credit score. The older an account, the more it could affect your average account age when you close it.
Remedy
It is very important to NEVER close an account. Before closing your card, talk to your issuer and see if you can either downgrade to a no annual fee card or, in the case of a secured card, upgrade to an unsecured credit card.
Next Steps
If your credit score recently dropped more than 50+ points then certainly you may feel a little anxious about what to do and where to start. After all, having a good credit score is very important if want to excel and live the life you desire.
However, as you can see from the steps outlined above, it is not the end of the world and there are many different ways to remedy the problem. If you are in doubt and need professional advice, contact us today and we’ll assist you in increasing your credit scores by providing you with all the information and resources you need. So click here to contact us or give us a call at 954-709-2462.
Related
As an expert in credit management and restoration, I've spent extensive time researching and working within the field to understand the intricacies of credit scoring systems and their impact on individuals. My knowledge extends beyond theoretical understanding; I have hands-on experience in helping people navigate and improve their credit scores.
Now, let's delve into the concepts mentioned in the provided article and provide additional insights:
Factors Affecting Credit Scores:
-
Payment History (35%):
- This is the most crucial factor. Late payments can significantly impact your credit score. The article correctly emphasizes its importance, and it's crucial to note that a single late payment can cause a substantial drop.
-
Amount Owed (30%):
- Credit utilization is a key aspect here. The article correctly advises keeping credit utilization under 30% and preferably under 10%. A sudden increase in credit card balances can lead to a notable drop in credit scores.
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Length of Credit History (15%):
- Closing an account, as mentioned in the article, can affect the average length of credit history negatively. This is a crucial consideration, especially for those with a relatively short credit history.
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Types of Credit Mix (10%):
- Diversity in the types of credit you hold is beneficial for your credit score. The article correctly notes that paying off a loan might temporarily affect your credit negatively because it alters your credit mix.
-
New Credit (10%):
- Hard inquiries resulting from new credit applications can lead to a temporary drop in credit scores. The article advises analyzing your credit report before applying for new credit.
Reasons for a 50+ Point Drop:
-
Late Payment:
- The article accurately highlights the impact of late payments and suggests potential remedies such as goodwill letters or disputing errors if applicable.
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Credit Utilization Increase:
- The article correctly identifies the significance of credit utilization. It provides practical advice on maintaining low credit card balances and creating an emergency fund to avoid reliance on credit cards.
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Loan Payoff:
- The article explains the paradox of paying off a loan, noting that while it's beneficial in the long run, it can temporarily affect credit scores due to changes in credit mix.
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Hard Inquiry:
- Properly explains how hard inquiries can affect credit scores and suggests considering the overall credit situation before applying for new credit.
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Account Closure:
- The article gives a comprehensive explanation of how closing an account can impact credit scores negatively, affecting both credit utilization and average length of credit history.
Remedies and Next Steps:
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Goodwill Letter:
- The article suggests a goodwill letter as a potential remedy for accurate late payments, demonstrating awareness of practical strategies.
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Emergency Fund:
- Recommends building an emergency fund to avoid high credit card balances during unforeseen circ*mstances.
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Professional Advice:
- Encourages seeking professional advice if uncertain, emphasizing the importance of expert guidance in credit management and restoration.
In conclusion, the information provided in the article aligns with established principles of credit management, and the suggested remedies demonstrate a nuanced understanding of the complexities involved in maintaining and improving credit scores. If you find yourself in a situation where your credit score has dropped, the article provides actionable steps and underscores the importance of seeking professional assistance when needed.
