Disclaimer: The following is a sponsored post by Lexington Law. All opinions are 100% my own.
Your credit score is one of the most important numbers you should know.
This 3-digit number can impact your life in so many ways, such as when buying a home, car or even just applying for a credit card.
There are many reasons why your credit score can drop, but today we will be talking about 7 different reasons your credit score may have dropped.
#1 Credit report error
Serious credit report errors affect up to 25% of people in the United States.
With over 200 million credit reports, this means there are over 6 million inaccurate credit reports.
An error in your credit report can mean the difference in saving thousands of dollars over the course of your lifetime.
Errors can range from inaccurate, unverifiable items related to collections, bankruptcies, late payments, charge-offs, and more.
Lexington Law has 10+ years of experience acting as advocates for over 500,000 consumers who need help repairing their credit and making sure they have a fair, accurate, and substantiated credit report.
And if you don't know your credit score, Lexington Law can give you a free credit report summary and credit repair consultation.
#2 Credit utilization ratio
Did you know that credit utilization is responsible for 30% of your credit score?
Let's take a look at this example of someone with a healthy credit utilization ratio and someone with a poor credit utilization ratio.
Person #1: Balance: $1,000/$10,000 = 10% credit utilization
Person #2: Balance: $9,000/$10,000 = 90% credit utilization
The Person #1 with the 10% credit utilization ratio has much less debt than Person #2 with a 90% credit utilization ratio.
To keep a healthy credit utilization ratio, Lexington Law states to keep your balances low, check your credit reports for accuracy, request a limit increase, and change your bills due dates.
#3 Short-lived accounts
Short-lived accounts are credit card accounts that have a short history.
For example, you may find that the current credit card you've had for several years doesn't have as good as rewards as a new credit card you've been eyeballing.
You decide to close your current credit card that you've had a long history with and open a new one.
This can actually be a really bad idea because your credit report will show your short-lived accounts.
The more credit history you have on your credit report, the better.
#4 Hard Inquiries
Hard inquiries occur when an individual applies for credit.
Though your credit score may fall just a few points, this can be a difference in a lot of money with higher interest rates with a large loan like a house.
“Hard inquiries count as minor negative entries and account for 10 percent of your credit score. Although the exact effect on your credit score will vary depending on your credit history and current standing you can expect to see a one to five point drop to your overall credit score.”
If you have hard inquiries, there are many reasons why you can dispute it:
- you did not approve it
- you were pressured into approval
- inquiries exceeded expectations
- you had no knowledge of it
#5 Unpaid bill sent to collections
If you have an unpaid bill sent to collections, you may have trouble deciding what to do to fix this issue.
But what if you already paid the bill that was sent to collections?
You may want to look into getting legal advice as a lawyer can evaluate the debt collector's claims as well as help you minimize credit damage.
Lexington Law has a trained legal team who have helped thousands of people with removing 10 million negative items on their credit reports, which also include collections.
#6 Lowered credit limit
If you closed a credit card or reduced your credit limit, this can impact your credit utilization ratio.
Credit utilization rate refers to the amount of credit you have already used divided by the total credit amount you have available.
Example #1: If you have a credit card with $10,000 available, and have used $1,000 of the credit, your credit utilization rate is 10%. This credit utilization rate is healthy, unlike the next example.
Example #2: If you have a credit card with $10,000 available, and have used $9,000 of the credit, your credit utilization rate is 90%. This credit utilization rate is not good and can hurt your credit score.
To ensure you keep a healthy credit utilization rate, make sure to pay off your credit cards in full every time you use them.
If you currently have a high credit utilization rate, create a financial plan to pay off your debt.
#7 Late payments
Late payments can drop your credit score and make you spend even more money on interest rates.
After checking through your credit report, you may find that you believe your credit score should be higher than it is.
If your credit score has taken a hit and you aren't sure why I recommend getting assistance from professionals who will act on your behalf for your personalized needs.
The Lexington Law team can give you a free credit report review and recommended personalized solutions that best fit your needs.
Are you working on improving your credit score?
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