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Has Your Credit Score Dropped Suddenly? Read on to Know More
Has Your Credit Score Dropped Suddenly? Read on to Know More

What is a credit score?

A credit score determines if you are reliable to be given credit or not. It is a three-digit score that uses a mathematical algorithm to test your level of liquidity. A credit score uses a lot of information while determining your credit score. It takes into account your past history, the amount of money you owe, other accounts, earlier credit history and any new inquiries regarding any new credit requisite and the amount of credit you are hoping to receive. In short, an enquiry in your entire financial enquiry is made that you have done in the past and in the present. Credit score remains valid for a period of 24 months, and after that, you need to get a new credit score.

Reasons for the credit score to go down

There are many reasons why your credit score might just drop. Some of the major reasons are:

1)      Late payment: If you fail to pay your monthly credit card bill or loan installments, then it will be reflected in your credit score. If you are late for paying any of your obligations, then it has the power to affect your credit score. The larger is the number of late payments, and the lower is your credit score.

2)      A big buy: The amount of credit available for use has a big effect on your credit score report. If you have recently made a big purchase and do not have a lot of credit available on your credit card then also your credit score tends to go down. You can avoid such a condition by paying up the balance of the credit card.

3)      Applying for fresh credit: This is a major reason for a fall in your credit score. If you have applied for a new loan, then it will be reported and added in your credit score report, and it will consequently bring down your credit score. Enquiries also have the power to pull down your score temporarily. If you have made multiple enquiries but not applied for the loan, then that will also affect your credit score.

4)      Lowering of credit limit: If the bank or the financial institution where all your transactions take place lower your credit limit, it has an adverse effect on your credit score. If a bank lowers your credit limit, it means that does not trust you with their money, and this can have a drastic effect on your credit score. 

5)      Closing a credit card with balance: If you cancel or close a credit card with a balance in it, then it will bring down your credit score. If you close a credit card that you have owned for a while, then that will affect your credit score. Closing a credit score is indicative of your inability to pay credit card monthly installments, and thus your credit score will decrease.

6)      Shedding the bankruptcy tag: Though after shedding the bankruptcy card, you are more financially stable, your credit score tends to go down. This happens because now your credit standing is being compared with people who have never filed for bankruptcy. Though it is not fair to be compared like that there is nothing you can do about it.

What can you do about it?

If your credit score has gone down considerably, then there is no need to panic. There are a few things that you can do to get back on track with your credit score:

1)      Set reminders for monthly payments: if you get late on your monthly payments and clearing off loan installments then it has a huge role to play in dragging down your monthly installments. In order to avoid such failures, set reminders on your phone or make a reminder book which you go through every day so that you do not forget to pay your monthly obligations. Many banks give the option for you to automatically pay off your monthly obligations, enroll for these services and be tension free so that you are not behind on your payments.

2)      Decreasing debt: Pay off your debts if you want to improve your credit score. This has a quick effect, and your credit score will jump up instantly. This is the fastest method to stabilize your credit score.

If you are unable to make ends meet and not able to maintain a good credit score, then contact a credit score counselor to get advice on where to invest and where to cut your expenses. A credit score is very important as depending on this factor you can become eligible for a loan. If you have a history of bad credit score, then your chances of getting a loan during emergencies will not be possible.

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