Credit scores are the black magic of personal finance. Sure, you may not understand them but these numbers have a whole lot of power over the loans and products you can get.
While you can check your credit score online at any time, learning how to keep it healthy and high can be challenging.
What’s more, should you notice that it sinks low, you may be wondering why that is. We’ve got you covered. Within this guide, we will take a look at some of the main reasons that it may have decreased and how you can give it a boost.
Can my credit score change?
Yes—a thousand times, yes. Your credit score is not a static number. It’s 100% normal for this number to go up and down depending on your circumstances.
There are many factors that can determine your credit score. In fact, there are three main credit reference agencies (also known as credit bureaus) and each has its own criteria to measure your score.
While the aspects of your finances they check will be similar, major credit bureaus may put more emphasis on some things than others. For that reason, you may find that your score varies from place to place.
Experiencing a sudden dip in your credit score can be stressful, especially if you’re up to date on all your bills and payments. You may be baffled as to why your perfect score has plummeted out of the blue. To add insult to injury, as this number goes down, so do your loan and product options. You may find it hard to get the credit that you need.
The first step here is figuring out what caused the change in your credit score. You may not know where to begin.
Here are six reasons your credit score might have dropped.
Why did my credit score go down?
Wondering what makes a credit score go down? Read on for some possible reasons your credit rating has taken a bashing.
#1: You’re overusing your credit card
Getting a ‘good’ credit score is a tricky game. Taking out, using, and repaying credit cards are all smart moves. Check, check, and check. Doing all of the above shows lenders that you are a reliable person who can repay the money they borrow. Great stuff.
However, if you’re overusing your credit cards, that could be a recipe for disaster. Yes, how much you borrow matters… more than you might expect. Experian suggests that you should use no more than 25% of your credit limit each month for a healthy credit score.
For example, if your limit is £1000, you should be spending no more than £250 on it each month and then paying off the fee too. If you need more than that, it’s worth looking into expanding your credit limit so that you’re falling within that 25% bracket all of the time.
It might sound odd since the credit lender has given you a certain amount to spend, but those are the facts. If you’re maxing out your credit card, it tells lenders that you are unreliable when it comes to managing your finances. Don’t fall into that sneaky trap.
#2: You’ve taken out new credit
Have you just taken out a new credit card or any other type of loan? Whenever you’re applying for new credit, one of the main things that a lender will do is a ‘hard search’ on your credit report. That move can lower your credit score temporarily. Things only get worse if you apply for several different credit lines at the same time. In the simplest of terms, the more applications you have going on at any time, the worse your score will be.
Similarly, if you get the new credit (hurrah!), you may see a slight decrease in your credit score for a short period. The reason is that lenders prefer people who have older lines of credit attached to their names. That’s bad news when you land yourself a new credit card.
#3: You keep moving home
Are you something of a nomad? Moving house every six months is a huge hassle… and it could also negatively impact your credit score. When people change addresses regularly, some lenders take that as a sign that they are not stable. (It’s not fair—we know!) That means that your credit score may sink through the floor when you move home regularly.
While you can’t help it if you need to move house often, you should keep in mind that this may affect your credit score. Lenders favour applicants who are in a secure and stable position. That often means staying in the same place for a matter of years.
#4: Someone else is impacting your score
If you’re frantically Googling “Why did my credit score go down when nothing changed?” could it be that someone else’s financial situation is to blame?
If you have a ‘financial association’ with another person, their financial position may negatively affect your score and dragging the credit reputation you’ve worked hard for down into the dirt! Consider whether you are financially linked to anyone and how their money expertise (or lack of!) may be hindering your score.
There are a few ways that you may be linked to another person. The most obvious is that you have a joint bank account or joint mortgage together. When you take that step, the two of you may become financially linked by association. However, it doesn’t end there. If you are someone else’s guarantor on a loan that they take out, their finances may also impact you.
#5: You’ve closed your old credit account
Let’s say that you’ve had a credit card for more than five years, but you stopped using it. You might think that it’s a smart move to close that account entirely—you know, wipe the old slate clean. While logic suggests that this is a savvy financial decision, the truth is that it can have a negative impact on your credit score. If the credit card was your oldest line of credit and you get rid of it, keeping it alive and kicking is likely the right way to go.
As we’ve already mentioned, lenders prefer people who have had (and used) credit for a long period. That way, they can see that you’re financially stable and have what it takes to pay off any money that you borrow. So, if you’ve recently closed down an account that was older than the rest of your accounts, you can bet your bottom dollar it will lower your score.
#6: You’ve missed payments
Now for the big one. Missing the odd payment or bill may not impact your credit score, especially if you’re quick to rectify the situation. However, if you consistently miss payments or make late payments to lenders, chances are your score will go down. There’s no real mystery here. The fact that you aren’t paying on time is a red flag for lenders.
The longer you leave a payment past its due date, the bigger its impact on your credit score. For example, if you have missed a payment and you leave it hanging over you for more than 30 days, you may find that it significantly impacts your score. This slip-up shows lenders that you are untrustworthy when it comes to borrowing any sum of money.
Of course, we all have troubles now and then. If you’re struggling to keep up with your bills, it may be worth taking a look at Citizens Advice. The main website boasts a variety of resources to help you keep on top of your budget and manage your everyday finances.
How to improve your credit score
If you’ve noticed that your credit score has dropped, the important thing is not to panic. Breathe. This isn’t the end of the world. Luckily, there are a few simple things you can do that will give those numbers a much-needed boost. Here are some options:
- Pay off outstanding debts
First things first, you should pay off any outstanding debts that you have. While this may be easier said than done, if you can get on top of your finances, it will directly impact your credit score. Take the time to look at your money and see where you can cut back.
- Rethink your credit card usage
How much are you using your credit card? If you’re going over 25% of your credit limit, you might want to change your ways. You can either look at extending your limit or lowering how much you tend to spend on the card. Get your calculator out and do the maths now.
- Register to vote
Next up, we’ve got a bit of a curveball. Believe it or not, being on the electoral roll can positively impact your credit score. If you have yet to register to vote, you can do so by going to the government website. Filling out the online form takes around five minutes. Once you’ve done that, your application will be pending and your score may improve.
- De-link your finances
Are you linked to your ex through a ‘financial association’? If you want to change that, you could write to credit reference agencies to ask for a notice of disassociation. This option may work if you are o longer living together and have no shared accounts. However, if you still have a joint account, you may not be able to ‘consciously uncouple’, so to speak.
Conclusion
It can be frustrating if your credit score drops. You may not realise that this has happened until you apply for a new credit card or loan. While you may never know the exact reason for this annoying change, improving it is the aim of the game. Sadly, you can’t massively boost your credit score overnight. However, using our tips could help you give it the edge.
