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Did your credit scores drop for no apparent reason? Use these wise tips to boost your scores quickly so an unexpected credit score dip doesn’t hurt your finances.

28 minute read

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00:03
hello everyone it’s me your friend Lora
00:06
Adams in your ears again with a never
00:09
equal episode of the money girl podcast
00:11
if you’re new to the show I am so glad
00:14
to have you here I’m a personal finance
00:16
author speaker spokesperson and consumer
00:19
advocate and if you’re a longtime
00:21
listener which I know many of you are
00:23
thank you so much for being a part of
00:25
this community I’ve been writing and
00:27
hosting this show since 2008 and I love
00:30
connecting with you the mission for the
00:33
show is to give you the knowledge
00:34
resources and motivation to manage your
00:37
money the best ways possible and create
00:40
a richer life and today’s show is for
00:43
you if you are concerned about a recent
00:46
drop in your credit score or maybe you
00:49
just simply want to make sure that your
00:50
credit keeps on moving up and never goes
00:54
back down and even if you think that
00:56
your credit is not a major priority in
00:58
your life maybe you’re thinking well
01:00
Laura I’m not in the market for a home
01:02
or a big purchase like a car and I don’t
01:06
want a new credit card etc I want you to
01:09
understand that maintaining great credit
01:11
is still a critical part of your overall
01:13
financial health it affects so many
01:15
aspects of your finances even if you
01:18
don’t plan on borrowing any money it’s
01:20
going to affect the rates that you pay
01:22
for certain types of insurance it
01:24
affects the offers that you get for
01:26
things like wireless phone plans the
01:29
ability to rent a home or apartment in
01:32
many cases hinges on your credit and
01:34
even your ability to get a job with an
01:37
employer who may review your credit as
01:39
part of their screening process and
01:41
there are more things in our life that
01:43
credit effects but those are the main
01:45
ones that a lot of people are surprised
01:47
about and today’s podcast was inspired
01:50
by a question from Michelle bee from
01:53
Orlando who says I normally don’t worry
01:56
much about my credit score and I don’t
01:58
need to use it for anything right now
02:00
but my FICO score for June was 785 and
02:05
now for July its 747 I didn’t do
02:09
anything different that I can recall I
02:11
don’t have a mortgage or any debt
02:13
I’m never late on bills I reviewed my
02:16
credit reports in the past six months
02:17
and didn’t see any red flags on them can
02:21
you help me understand why this drastic
02:24
change occurred and if I should be
02:26
worried about something like identity
02:27
theft Michelle thank you for this
02:30
question and for previous questions that
02:32
you’ve sent in I know that seeing your
02:35
credit score drops suddenly and for no
02:37
apparent reason really can be
02:39
frustrating and a little confusing as
02:41
well in this podcast I’m gonna explain
02:44
why scores fluctuate and when you should
02:47
be worried about a drop I’m also going
02:50
to cover tips to boost your scores
02:51
quickly so an unexpected credit score
02:54
dip doesn’t hurt your finances you’ll
02:57
find the notes for this and every show
02:59
with links to resources that I mentioned
03:01
plus the full archive of podcasts over
03:04
in the money girls section at quick and
03:07
dirty tips com this is episode number
03:10
599 called eight reasons your credit
03:14
score dropped and what to do it’s
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supported by Griffin home Griffins
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girl alright so let’s talk about credit
03:53
I think one of the biggest
03:54
misconceptions about credit is that you
03:57
only have one credit score like FICO a
04:00
lot of us have heard of FICO so you may
04:02
just think well that’s what a credit
04:04
score is and while FICO is a very
04:07
popular type of score there are actually
04:10
hundreds of different credit scoring
04:12
models that are used by mortgage lenders
04:15
credit card issuers insurers and you
04:18
know a variety of other merchants there
04:20
are even multiple types and versions of
04:22
FICO scores and each scoring model is a
04:26
little different
04:27
all use a pretty complicated algorithm
04:30
to evaluate you based on the information
04:32
in your credit reports and those reports
04:34
are at the nationwide credit bureaus
04:37
Equifax Experian and TransUnion and of
04:41
course the higher your score the less
04:43
risky you appear to potential creditors
04:45
and merchants so let me give you some of
04:48
the most popular scores and the ranges
04:51
so just so you have an idea of what I’m
04:53
talking about
04:54
for the FICO mortgage score that ranges
04:57
from 300 to 850
04:59
but the FICO auto score ranges from 250
05:03
to 900 the FICO bankcard score ranges
05:06
from 250 to 900 and the Vantage score
05:09
ranges from 501 to 990 and then there’s
05:13
the TransUnion score that ranges from
05:15
300 to 850 so you can see they’re all
05:18
slightly different and in addition to
05:20
having different score ranges each
05:22
scoring model puts emphasis on different
05:25
factors for instance let’s say you
05:27
missed a payment on an auto loan well
05:30
that might be weighed more heavily when
05:32
factored into an auto scoring model if
05:35
you’re going for an auto loan then it
05:38
would be factored into a different
05:40
scoring model and the exact formula that
05:42
a credit scoring company uses is kept
05:45
confidential
05:46
however FICO is pretty transparent and
05:48
they say that they use the following
05:50
factors and weights as a baseline the
05:54
most important factor that FICO uses is
05:56
your payment history they say this makes
05:59
up 35 percent of a FICO score payment
06:03
history is things like any late payments
06:05
accounts and collections in any
06:07
bankruptcies these affect your score the
06:10
most so making payments on time is a
06:13
critical critical factor for maintaining
06:16
good credit
06:17
FICO says the second most important
06:19
factor is amounts that you owe and
06:21
that’s 30 percent this is also known as
06:24
credit utilization it’s the amount of
06:26
debt that you have compared to your
06:29
available credit limit and they also
06:30
look at just the total amount of debt
06:32
that you have as a number and using a
06:35
smaller percentage of your available
06:37
credit will always boost your score
06:41
they also look at age of your credit
06:43
history that’s 15% of your FICO score
06:45
this is how long you’ve had credit
06:48
accounts open in your name having older
06:51
accounts improves your score they also
06:53
evaluate your new credit inquiries
06:56
that’s ten percent of your score this is
06:58
any applications that you may make for
07:01
new credit accounts like a new credit
07:03
card or a new loan that will temporarily
07:06
lower your score and lastly the mix of
07:09
credit types is 10% this is the variety
07:12
of credit accounts in your name such as
07:14
credit cards auto loans and mortgages
07:16
having a mix of credit types actually
07:19
helps improve your score additionally
07:22
the data used by a credit model varies
07:25
depending on where it comes from the
07:28
credit bureaus may all have slightly
07:30
different information about you so
07:33
that’s why if you get a score from let’s
07:34
say Experian and you get one from
07:36
TransUnion and not only might it be
07:38
different because these score ranges are
07:40
different but it can be different
07:42
because they have slightly different
07:44
information about you and that’s because
07:45
creditors may only report your payment
07:48
information to one or two of the credit
07:51
bureaus instead of all three of them so
07:53
your information may not match 100% from
07:57
credit bureau to credit bureau the
07:59
bottom line is that a credit score is
08:01
going to depend on which scoring model
08:04
is used and which credit bureau is used
08:06
since there’s so much variation and
08:09
credit scores doing an apples to apples
08:12
comparison and looking for trends is
08:14
really what’s most valuable to us as
08:16
consumers your actual score the number
08:19
really isn’t as important as making sure
08:22
that your FICO or your vantage score is
08:24
moving up over time or at least holding
08:27
steady over time well it’s not unusual
08:30
for credit scores to fluctuate a few
08:32
points from month to month a larger drop
08:35
of 20 points or more may indicate a
08:38
problem that should be investigated
08:39
right away since Michelle doesn’t have
08:43
any late payments or changes with her
08:45
accounts why is her credit score dropped
08:47
38 points well we’re going to review
08:50
eight reasons for a sudden score drop
08:53
and
08:54
you and Michelle should do about it
08:56
alright the first reason is you’ve
08:59
become the victim of identity theft
09:02
this is by far the worst and most
09:04
serious reason you could see your credit
09:07
scores plummet if a thief steals your
09:09
personal information and takes out a
09:12
loan or gets a credit card in your name
09:14
he or she is not likely to pay the bill
09:16
now I’m not saying that that’s what has
09:18
happened with Michelle she did let me
09:20
know that she reviewed her credit
09:22
reports and everything looks ok so we’ll
09:25
talk more about what could be going on
09:26
with Michelle since payment history is a
09:29
top factor in how credit scores are
09:31
calculated even one missed payment will
09:34
cause your scores to instantly drop so
09:37
definitely review your credit reports
09:39
for any suspicious activity like
09:41
accounts that are not yours or higher
09:44
than normal balances on existing
09:46
accounts and if nothing is amiss your
09:49
score drop must be due to something else
09:52
and as I mentioned that’s got to be the
09:54
case with Michelle but if you have
09:57
become the victim of identity theft
09:59
you’ve got to act quickly to make sure
10:02
that you minimize the damage you want to
10:04
contact any creditor listed on your
10:06
credit report that you don’t recognize
10:07
and ask to speak with their fraud
10:09
Department then place a fraud alert on
10:12
your credit reports with the credit
10:14
bureaus so that no new accounts can be
10:16
opened in your name you also want to
10:18
file disputes with each of the credit
10:20
bureaus where the fraudulent information
10:22
appears and file a police report so that
10:26
you’ve got proof that a crime was
10:28
committed against you a cyber criminal
10:32
can use your personal information to
10:34
make purchases on your existing credit
10:36
card accounts they can even drain your
10:39
checking or your savings accounts so
10:41
definitely change the passwords on all
10:43
of your online financial accounts to
10:45
prevent any future theft remember that
10:48
the best way to protect your credit and
10:50
your identity is to regularly check your
10:53
credit reports for unauthorized activity
10:56
in a lot of cases that’s your first sign
10:57
that something bad is happening it’s
11:00
easier than ever to stay on top of your
11:01
credit you can use annual credit
11:04
report.com that’s the site where you can
11:06
get in
11:07
newel free copy of each of your reports
11:10
or you can sign up for free access more
11:13
frequently in a lot of cases there are
11:15
sites that will give it to you monthly
11:17
or even with unlimited access at a
11:20
variety of free credit sites and I’ll
11:22
list some in the notes for the show in
11:24
the money girls section at quick and
11:26
dirty tips.com
11:26
alright let’s move on to the second
11:29
reason why your scores may have dropped
11:31
you may have an error in your credit
11:34
reports so as you review your credit
11:37
reports looking for evidence of fraud
11:38
you may find other errors that are to
11:41
blame for a sudden drop in your credit
11:43
scores for instance there could be
11:45
inaccurate late payments account
11:47
balances that are incorrect or your
11:50
available credit limits may be wrong and
11:53
may be dragging down your scores without
11:54
you knowing it so if you see anything
11:57
that is not right definitely file a
11:59
dispute with each of the credit bureaus
12:01
that shows that in accurate information
12:03
and remember as I mentioned it may not
12:06
be across all three of the bureaus so
12:08
you’ll want to check all three and then
12:10
file a report or file a dispute where
12:12
needed
12:13
then contact the creditor that reported
12:16
the error and ask them to correct the
12:18
data with the credit bureaus be prepared
12:21
to send any documentation you have that
12:23
will help you prove a creditors error
12:25
and it may take a month or two before an
12:27
error gets researched and updated so
12:30
just keep checking your credit reports
12:31
to make sure that the problem does get
12:33
resolved and that your scores will go
12:36
back up
12:37
reason number three that your scores may
12:40
have dropped is you unintentionally
12:42
missed a payment due date as I
12:45
previously mentioned how you pay bills
12:47
is the single most important factor that
12:50
a credit scoring model uses to calculate
12:52
your scores I call payment history the
12:55
king of credit because it makes a the
12:58
largest percentage of a typical credit
13:00
score when you have a record of paying
13:02
accounts on time it shows that you’ve
13:04
been responsible with money it suggests
13:06
that your good behavior is going to
13:08
continue and that you’re not going to
13:10
default on debt in the future likewise
13:12
having late payments or accounts and
13:14
collections are very serious red flags
13:17
that you have not been dependable and
13:19
that you may not read
13:21
pay debts with any regularity or at all
13:23
but that’s why the consequences are
13:25
pretty stiff when you have a late
13:26
payment even making just one late
13:29
payment can drastically reduce your
13:31
scores and this is especially true if
13:33
you have good or excellent credit you’ll
13:36
see a pretty steep drop in your scores
13:39
but let’s say you did pay on time and
13:42
there’s just an error there well if you
13:44
check your reports and you are surprised
13:46
to see a late payment you’ve got to act
13:49
quickly to settle your account maybe
13:51
your payment got lost in the mail or
13:52
damaged in the mail or there was a
13:54
glitch with your online bill pay service
13:56
try to figure out what’s going on and
13:59
just make sure that you can prove to a
14:00
creditor that you did pay on time and if
14:03
you can do that they may be willing to
14:05
cut you some slack especially if you’ve
14:07
been a good customer just pay your bill
14:09
as quickly as possible and request that
14:11
the late payment with the credit bureaus
14:13
be reversed also note that a late
14:17
payment can’t be reported to the
14:19
nationwide credit bureaus until your 30
14:21
days past due so what that means is if
14:24
you miss a payment due date by just a
14:25
few days or even a week and you quickly
14:27
get caught up your mistake won’t show up
14:30
on your credit reports all right let’s
14:32
take a short break to thank the amazing
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sponsors who help keep money girl going
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for you week after week and then we’ll
14:39
cover the remaining five reasons why you
14:42
may have seen a credit score drop
14:44
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today’s episode is also supported by the
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employee benefits company unum while
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vacations now is also a great time for a
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mid-year financial checkup according to
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forty-nine percent also said they
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back on the fourth reason why your
17:13
credit scores may have dropped and that
17:15
is your credit utilization increased I
17:19
mentioned that the second most important
17:22
factor in credit scores is how much debt
17:24
you owe and your credit utilization
17:26
using a smaller percentage of your
17:29
available credit on revolving accounts
17:31
these are your credit cards and lines of
17:33
credit using smaller amounts boost your
17:37
scores and the opposite is true when you
17:39
use more of your available credit that
17:42
causes your utilization ratio to spike
17:45
and your credit scores too quickly
17:48
robbed and what may surprise you about
17:50
credit utilization is that it can
17:52
increase even if you haven’t been maxing
17:55
out your credit cards for instance if
17:57
your card issuer cuts your available
18:00
credit limit your utilization ratio
18:03
would go up why well you’d have the same
18:07
outstanding balance compared to a
18:09
smaller credit line and that makes you
18:12
appear less favorable to credit scoring
18:14
models card issuers set your spending
18:17
limit when you first open an account but
18:20
they can increase or decrease it
18:23
according to the terms of your agreement
18:24
if an issuer see signs of risk such as
18:28
large cash advances or a card that
18:31
hasn’t been used for an extended period
18:33
they can take action to protect
18:35
themselves by reducing your credit limit
18:38
or even closing your account altogether
18:40
so if you’ve had a credit line cut or
18:44
cancelled review your credit report for
18:46
any inaccurate information that might
18:49
have been a concern to your creditor
18:51
then dispute any errors on your credit
18:53
reports and contact the creditor to
18:56
discuss raising your credit limit that
18:59
will reduce your utilization ratio and
19:01
help boost your scores reason number
19:04
five your scores may have dropped is you
19:07
have no credit utilization well having
19:11
low credit utilization on revolving
19:13
accounts is one of the best ways to
19:15
build and maintain great credit
19:18
you can’t go overboard by going down to
19:21
zero utilization you’ve got to have
19:24
credit accounts and use them responsibly
19:26
in order to have enough data to even
19:28
generate a credit score but don’t get me
19:30
wrong it is not necessary to carry debt
19:33
from month to month or to pay any
19:35
interest in order to build credit you
19:37
simply must have open accounts that show
19:40
some activity such as making small
19:43
charges from time to time that you pay
19:45
off in full that’s a smart strategy that
19:49
doesn’t cost anything and allows you to
19:51
build great credit over time number six
19:54
your average age of credit decreased I
19:58
mentioned that the age of your credit
20:00
accounts is a relatively small
20:02
during your credit scores credit models
20:04
figure the total months that all of your
20:07
accounts have been open and divided by
20:09
the number of accounts you have to come
20:11
up with an average having a long average
20:15
credit history helps lenders know if
20:17
you’re likely to be financially
20:18
responsible in the future and are a good
20:21
credit risk so the longer that you’ve
20:23
had credit accounts open in your name
20:26
the better once a credit account is
20:29
closed or paid off your average age of
20:32
accounts begins to decrease if you close
20:35
a really old account let’s say you’ve
20:37
had a credit card in your name for
20:38
decades and you close it that will have
20:41
a more negative effect on your credit
20:43
scores then if you closed a relatively
20:45
young account maybe something you only
20:47
had open for a few months or a year also
20:50
when you open a new account you
20:53
immediately reduce the average age of
20:55
your accounts which may cause a drop in
20:58
your credit scores to make sure your
21:00
average age of credit accounts grow
21:02
slowly over time only open new accounts
21:05
when it’s absolutely necessary and make
21:07
sure to keep your oldest accounts open
21:10
and active many people mistakenly
21:12
believe that they should immediately
21:14
close a credit card after paying it off
21:16
well that typically is not a great idea
21:19
a better option is to leave a paid off
21:22
card open and use it once in awhile for
21:25
a small charge that you pay off in full
21:26
that allows you to leverage its positive
21:29
payment history its longevity and the
21:32
available credit limit to raise your
21:34
credit scores all right the seventh
21:37
reason your scores may have dropped your
21:39
credit mix has changed while it’s not
21:42
the most important factor in how your
21:44
credit scores are calculated having a
21:46
mix of different types of accounts helps
21:48
increase your scores for instance having
21:51
revolving accounts such as a credit card
21:53
or a line of credit in addition to
21:55
installment accounts such as a car loan
21:58
or a mortgage shows lenders that you can
22:00
handle different types of credit
22:01
responsibly so if you just paid off the
22:05
only installment loan you have your
22:07
credit mix looks less diverse to lenders
22:10
and you know there’s not much that you
22:13
can do about that
22:14
you need to finance a purchase like a
22:16
home or a car I don’t recommend taking a
22:19
loan just for the sake of boosting your
22:21
credit I do recommend having credit
22:23
cards open in your name but you don’t
22:24
necessarily want to take out a loan just
22:27
to boost your credit if you maintain
22:29
good habits like paying credit cards and
22:32
utility bills on time and maintaining
22:35
those low utilization rates your credit
22:37
score’s will naturally go up over time
22:39
as is often the case you’re going to get
22:42
the best scores by using credit as long
22:45
as you’re using it wisely and
22:46
responsibly and by the way if you want
22:49
to learn a lot more about taking control
22:51
of your credit and pursuing your
22:53
financial dreams I wouldn’t encourage
22:55
you to check out my online class we go
22:57
way in-depth into this topic the class
23:00
is called build better credit the
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ultimate credit score repair guide it
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teaches all aspects of building credit
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from scratch how to prepare for a major
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purchase in dealing with creditors
23:11
wisely I’ll tell you a little bit more
23:12
about it at the end of the show and our
23:15
last reason number eight
23:18
you made a large purchase on credit
23:20
making a large credit card charge is one
23:24
of the most common reasons for an
23:25
unexpected credit score drop you might
23:28
think that it doesn’t matter as long as
23:30
you pay your credit card bill in full by
23:32
your statement due date now that’s
23:33
definitely what I recommend doing
23:36
problem is your credit card company may
23:39
report your balance to the credit
23:41
bureaus before your payment is received
23:42
in other words paying off your entire
23:45
credit card balance every month
23:47
generally does not improve your
23:49
utilization ratio so this is why you
23:52
never want to exceed about 20 percent of
23:55
your available credit limit on an
23:58
individual card the bottom line is that
24:00
if you use more of your available credit
24:02
it’s a mathematical signal that you
24:05
might make late payments in the future
24:07
and are a higher credit risk so in order
24:11
to keep your utilization ratio low and
24:14
boost your scores never charge more than
24:16
20% of your available credit limit on
24:19
any one card or on a total of all of
24:23
your cards you can help this by
24:25
requesting a credit limit increase
24:28
one or more of your credit cards that’ll
24:30
give you a little bit more room another
24:32
tip is to open an additional credit card
24:34
and spread out charges on multiple cards
24:37
instead of maxing out one card and
24:40
finally you can make multiple payments
24:43
during the month to increase the
24:44
likelihood that a lower balance will get
24:47
reported to the credit bureaus okay now
24:50
that you understand eight common reasons
24:53
why credit scores can take a dive let’s
24:56
get back to michelle situation she said
24:58
that her credit reports look good within
25:00
the past six months now i’m not really
25:03
sure what that means if she hasn’t
25:05
reviewed them i would say within the
25:07
past month she should but let’s assume
25:09
that she is not the victim of identity
25:12
theft
25:13
that she doesn’t have any errors on her
25:15
reports and she didn’t make a late
25:16
payment michelle mentioned having no
25:19
debt but she didn’t say if she has a
25:21
credit card account it’s possible that
25:24
her credit limits could have dropped or
25:26
that she’s being penalized for having no
25:28
utilization and if that’s the case she
25:31
could request a credit limit increase or
25:34
even start using a credit card to
25:35
continue building a positive payment
25:37
history
25:38
if michelle had credit accounts in the
25:41
past like maybe a car loan that’s now
25:43
paid off it’s possible that her average
25:46
age of credit has decreased or that
25:48
she’s being dinged for not having any
25:51
diversity in her credit profile and if
25:54
she does have a credit card she may have
25:56
used it to make a purchase with the
25:58
intent to pay it off right away but as i
26:00
explained if you rack up a credit card
26:03
and the balance gets reported to the
26:05
credit bureaus that could be the reason
26:07
for her credit score drop but michelle i
26:10
would say that if you simply follow my
26:12
recommendations to use a credit card
26:14
strategically by making smaller charges
26:18
that you pay off in full your score
26:20
should rebound within the next few
26:22
months so thank you michelle again for
26:24
your question and i hope this has helped
26:27
everybody understand some of the main
26:29
reasons why you might have seen a credit
26:31
score drop and if you’re stressed about
26:33
your credit or know that it’s keeping
26:35
you from reaching your financial goals i
26:37
would definitely recommend checking out
26:38
my online class called build better
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credit it will put you on the road to
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more success and less financial stress
26:45
build better credit gives you all the
26:47
tools that credit professionals are
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using and charging thousands of dollars
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for you’ll learn what to do when to do
26:54
it and how to do it so you repair your
26:57
credit and get the financial life you
26:59
deserve I love online learning because
27:02
you get lifetime access to the content
27:04
and you can learn at your own pace and
27:06
for this audience I’m offering a huge
27:08
discount because you’re in the money
27:10
girl community so you can get the
27:12
discount or just learn more by texting
27:14
the phrase credit course to the number
27:17
three three four four four again credit
27:20
course with no space to the number three
27:23
three four four four or you can get more
27:25
information at laura dee Adams com I
27:28
hope to see you in class
27:30
if you have a money question or an idea
27:32
for a future show topic we would love to
27:34
hear it
27:35
we’ve got a voicemail line if you’d like
27:37
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three zero two three six four zero three
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27:45
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is a growing problem so you really need
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[Music] 28:33
[Applause] 28:34
[Music]

English (auto-generated)

Michelle B. says: “I normally don’t worry much about my credit score and I don’t need to use it for anything right now. But my FICO score for June was 785 and now for July, it’s 747. I didn’t do anything different that I can recall. I don’t have a mortgage or any debt and I’m never late on bills. I reviewed my credit reports in the past six months and didn’t see any red flags on them. Can you help me understand why this drastic change occurred and if I should be worried about identity theft?”

Michelle, thank you for this question. I know that seeing your credit score drop suddenly and for no apparent reason can be frustrating. In this post, I’ll explain why scores fluctuate and when you should be worried about a drop. I’ll also cover tips to boost your scores quickly, so an unexpected credit score dip won’t hurt your finances.

What Affects Your Credit Score?

One of the biggest misconceptions about credit is that you only have one credit score, such as FICO. While FICO is a popular type of score, there are actually hundreds of different credit scoring models that are used by mortgage lenders, credit card issuers, insurers, and merchants. There are even multiple types and versions of FICO scores.

Each scoring model uses a complicated algorithm to evaluate you based on the information in your credit reports at the nationwide credit bureaus: Equifax, Experian, and TransUnion. The higher your score the less risky you appear to potential creditors and merchants.

Here are the ranges for some popular credit scores:

  • FICO Mortgage Score: 300 to 850
  • FICO Auto Score: 250 to 900
  • FICO Bankcard Score: 250 to 900
  • VantageScore: 501 to 990
  • TransUnion: 300 to 850

In addition to having different score ranges, each scoring model puts emphasis on different factors. For instance, having a missed payment on an auto loan might be weighed more heavily when factored into an auto scoring model.

The exact formula that a credit scoring company uses is kept confidential. However, FICO says they use the following factors and weights as a baseline:
  • Payment history (35%) – such as late payments, accounts in collections, and bankruptcies affects your score the most. Making payments on time is a critical factor for maintaining good credit.
  • Amounts owed (30%) – is also known as credit utilization, which is the amount of debt you have compared to your available credit. Using a smaller percentage of your available credit boosts your score.
  • Age of credit history (15%) – is how long you’ve had credit accounts open. Having older accounts improves your score.
  • New credit inquiries (10%) – are applications for new credit accounts, which can temporarily lower your score.
  • Mix of credit types (10%) – is the variety of credit accounts in your name, such as credit cards, auto loans, and mortgages. Having a mix of credit types helps improve your score.

Additionally, the data used by a credit model varies depending on where it comes from. The credit bureaus may have slightly different information about you. That’s because creditors may only report your payment information to one or two of them. That means a credit score depends on which scoring model and credit bureau are used.

Since there’s so much variation in credit scores, doing an apples-to-apples comparison and looking for trends is what’s most valuable. Your actual score isn’t as important as making sure your FICO or VantageScore is moving up or holding steady over time.

8 Reasons Your Credit Score Dropped Suddenly

  1. You’ve become the victim of identity theft.
  2. You have an error in your credit reports.
  3. You unintentionally missed a payment due date.
  4. Your credit utilization increased.
  5. You have no credit utilization.
  6. Your average age of credit decreased.
  7. Your credit mix has changed.
  8. You made a large purchase on credit.

While it’s not usual for credit scores to fluctuate a few points from month to month, a larger drop of 20 points or more may indicate a problem that should be investigated right away.

Since Michelle doesn’t have any late payments or changes with her accounts, why has her credit score dropped 38 points? We’ll review eight reasons for a sudden score drop and what you and Michelle should do about it.

1. You’ve become the victim of identity theft.

This is by far the worst and most serious reason you could see your credit scores plummet. If a thief steals your personal information and takes out a loan or gets a credit card in your name, he or she isn’t likely to pay the bill.

Since payment history is a top factor in how credit scores are calculated, even one missed payment will cause your scores to instantly drop. Review your credit reports for suspicious activity such as accounts that aren’t yours and higher-than-normal balances on existing accounts. If nothing is amiss, your score drop must be due to something else.

But if you have become the victim of identity theft, act as quickly as possible to minimize the damage. Contact any creditor listed on your credit report that you don’t recognize and ask to speak with their fraud department. Then place a fraud alert on your credit reports with the credit bureaus so no new accounts can be opened in your name.

File disputes with each of the credit bureaus where the fraudulent information appears. Also, file a police report so you have proof that a crime was committed against you.

A cybercriminal can use your personal information to make purchases on your existing credit card accounts or even drain your checking or savings. So, change the passwords on all of your online financial accounts to help prevent future theft.

Remember that the best way to protect your credit and identity is to regularly check your credit reports for unauthorized activity. It’s easier than ever to stay on top of your credit by signing up for free access and alerts at sites such as Credit Karma and Credit Sesame.

Identity theft is serious. Debt.com can help you seriously protect your identity.

Get Help

2. You have an error in your credit reports.

As you review your credit reports looking for evidence of fraud, you may find other errors that are to blame for a sudden drop in your credit scores. For instance, inaccurate late payments, account balances, and available credit limits may be dragging down your scores without you knowing it.

File a dispute with each of the credit bureaus that shows any inaccurate information. Then contact the creditor that reported the error and ask them to correct the data with the credit bureaus. Be prepared to send the documentation that helps you prove a creditor’s error.

It may take a month or two before an error gets researched and updated. So keep checking your credit reports to make sure the problem gets resolved and your scores rise.

3. You unintentionally missed a payment due date.

As I previously mentioned, how you pay bills is the single most important factor that credit scoring models use to calculate your scores. I call payment history “the king of credit” because it makes up the largest percentage of a typical credit score.

When you have a record of paying accounts on time, it shows that you’ve been responsible with money. It suggests that your good behavior will continue, and you won’t default on debt in the future.

Likewise, having late payments or accounts in collections are serious red flags that you haven’t been dependable and that you may not repay debts with regularity or at all. The consequences are stiff. Even making just one late payment can drastically reduce your scores, especially if you have good or excellent credit.

But what if you did pay on time? If you check your credit reports and are surprised to see a late payment, act quickly to settle your account. Maybe your payment got lost or damaged in the mail or there was a glitch with your online bill pay service.

If you can prove to a creditor that you did pay on time, they may be willing to cut you some slack, especially if you’ve been a good customer. Pay your bill as quickly as possible and request that the late payment with the credit bureaus be reversed.

Also, note that a late payment can’t be reported to the nationwide credit bureaus until you’re 30 days past due. So, if you miss a payment due date, but quickly get caught up, your mistake won’t show up on your credit reports.

See also: 3 Best Tips to Improve Your Credit Score

4. Your credit utilization increased.

I mentioned that the second most important factor in credit scores is how much debt you owe and your credit utilization. Using a smaller percentage of your available credit on revolving accounts (such as credit cards and lines of credit) boosts your scores. And the opposite is true when you use more of your available credit. That causes your utilization ratio to spike and your credit scores to quickly drop.

What may surprise you about credit utilization is that it can increase even if you haven’t been maxing out your credit cards. For instance, if your card issuer cuts your available credit limit, your utilization ratio would go up. You’d have the same outstanding balance compared to a smaller credit line, which makes you appear less favorable to credit scoring models.

Card issuers set your spending limit when you first open an account, but they can increase or decrease it according to the terms of your agreement. If an issuer sees signs of risk, such as large cash advances or a card that hasn’t been used for an extended period, they can take action to protect themselves by reducing your credit limit or closing your account altogether.

If you’ve had a credit line cut or canceled, review your credit report for any inaccurate information that might have been a concern to your creditor. Then dispute any errors on your credit reports and contact the creditor to discuss raising your credit limit.

5. You have no credit utilization.

While having low credit utilization on revolving accounts is one of the best ways to build and maintain great credit, don’t go overboard by going down to zero utilization. You must have credit accounts and use them responsibly in order to have enough data to generate credit scores.

It’s not necessary to carry debt from month to month or pay any interest in order to build credit. You simply must have open accounts that show some activity, such as making small charges from time to time that you pay off in full. This is a smart strategy that doesn’t cost anything and allows you to build great credit over time.

See also: How to Get Credit With No or Bad Credit

6. Your average age of credit decreased.

I mentioned that the age of your credit accounts is a relatively small factor in your credit scores. Credit models figure the total months that all of your accounts have been open and divide by the number of accounts you have.

Having a long credit history helps lenders know if you’re likely to be financially responsible in the future and are a good credit risk. So, the longer you’ve had credit accounts open in your name, the better.

Once a credit account is closed or paid off, your average age of accounts begins to decrease. If you close a really old account (such as a credit card that’s been in your name for decades), it has a more negative effect on your credit scores than if you closed a younger account.

Also, when you open a new account, you immediately reduce the average age of your accounts, which may cause a drop in your scores. To make sure your average age of credit accounts grows over time, only open new accounts when it’s absolutely necessary. And make sure to keep your oldest accounts open and active.

Many people mistakenly believe that they should immediately close a credit card after paying it off. A better option is to leave a paid-off card open and use it once a while for a small charge that you pay off in full. That allows you to leverage its positive payment history, longevity, and available credit limit to raise your credit scores.

Is your credit rating holding you back? Find out how to fix it.

Get Answers

7. Your credit mix has changed.

While it’s not the most important factor in how your credit scores are calculated, having a mix of different types of accounts helps increase your credit scores. For instance, having revolving accounts, such as a credit card or line of credit, in addition to installment accounts, such as a car loan or mortgage, shows lenders that you can handle different types of credit responsibly.

So, if you just paid off the only installment loan you have, your credit mix looks less diverse to lenders and there’s not much you can do about that. Unless you need to finance a purchase, like a home or a car, I don’t recommend taking a loan just for the sake of boosting your credit.

If you maintain good habits, like paying credit cards and utility bills on time and maintaining low utilization rates, your credit scores will naturally go up over time. As is often the case, you’ll get the best scores by using credit – as long as you use it wisely.

8. You made a large purchase on credit.

Making a large credit card charge is one of the most common reasons for an unexpected credit score drop. You might think that it won’t matter, as long as you pay your credit card bill in full by your statement due date.

Problem is, your credit card company may report your balance to the credit bureaus before your payment was received. In other words, paying off your entire credit card balance every month generally does not improve your utilization ratio.

The bottom line is that if you use more of your available credit, it’s a mathematical signal that you might make late payments in the future and are a higher credit risk.

Follow these tips to reduce your utilization ratio and boost your scores:

  • Never charge more than 20% of your available credit limit on any one card or on a total of all your credit cards.
  • Request a credit limit increase on your credit cards.
  • Open an additional credit card and spread out charges on multiple cards instead of maxing out one card.
  • Make multiple payments during the month to increase the likelihood that a lower balance gets reported to the credit bureaus.

Now that you understand eight common reasons why your credit scores can take a dive, let’s get back to Michelle’s situation. She said that her credit reports looked good within the past six months. If she hasn’t reviewed them within the past month, she should. But let’s assume that she isn’t the victim of identity theft, doesn’t have any errors on her reports, and didn’t make a late payment.

Michelle mentioned having no debt, but she didn’t say if she has credit card accounts. It’s possible that her credit limits could have dropped or that she’s being penalized for having no utilization. If that’s the case, she could request a credit limit increase or start using a credit card to continue building a positive payment history.

If Michelle had credit accounts in the past that are now paid off, it’s possible that her average age of credit has decreased or that she’s being dinged for not having any diversity in her credit profile.

If she does have a credit card, she may have used it to make a purchase with the intent to pay it off right away. As I explained, if the balance was reported to the credit bureaus, it could be the reason for her score drop. But if she follows my recommendation to use a credit card strategically her scores should rebound within the next few months.

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About the Author

Laura Adams, Quick and Dirty Tips

Laura Adams, Quick and Dirty Tips

Laura Adams is an award-winning author of multiple books, including Money Girl’s Smart Moves to Grow Rich. Her newest title, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, is an Amazon No. 1 New Release.

Published by Debt.com, LLC