Is someone's credit score unexpectedly dropping or fluctuating? Regretfully, this is not unusual, and you have most likely done nothing wrong. That being said, it is your responsibility to determine the cause of the nosedive and implement appropriate fixes. For just a quick reference, the following are the most common reasons for credit drops as well as how to get back on course.
- Identity Theft
Having a good credit score will unquestionably suffer if a scam artist assumes or steals your identifiable details and opens credit lines in your name. Identity theft is already on the rise thanks to the interconnection of financial smartphones and smart apps, and preventing it requires ingenuity.
But don't worry, you can keep a close eye on bogus entries on your credit report through credit monitoring services.
- Paying Off a Loan
You read that right: repaying a loan can result in a sudden drop in credit score. Why? It all comes down to how your credit score is calculated, with credit mix accounting for 10% of the equation. As a result, repaying a loan reduces the overall diversity of your credit lines, lowering your credit score.
- Applying for Several Lines of Credit
Opening multiple credit cards or unsecured loans at once is a red flag to creditors. It denotes someone unable to live within their means or deal with looming financial commitments.
This same drop is the result of multiple hard queries on your report in quick succession. Questions about credit cards, rather than auto loans or mortgages, typically cause a drop during the fiscal quarter.
- Erroneous Entries on Your Credit Report
Banks and lenders are notorious for making mistakes when trying to report your credit activities. In fact, one of the primary concerns dealt with by the Consumer Financial Protection Bureau is false information (CFPB). Unknown accounts are among the most common errors.
- Incorrect personal information
- Settled debts that are not reported as cleared.
- Payments that are reported as missing
According to Forbes, one or more of these errors can result in a drop of up to 100 points.
- Missed Payments
As previously stated, your repayment history accounts for 35% of your credit score. As a result, loan repayments play a significant role in how lenders perceive you. As a result, a single missed payment can significantly lower your credit score. Even so, it is to be anticipated that payments will be late; it is the length of time that the debt remains unfunded that you'd be concerned about.
A decline in your credit score can jeopardize your opportunity to secure credit on favorable terms. The main reasons for the drop could be your fault, a mistake made by trying to report to the bureaus, or even fraud. Finally, it is one's responsibility to monitor, identify, and make sure that your score does not drop further and that, wherever possible, errors are corrected.