Today, carrying a credit card is no big deal, but how you utilize it makes all the difference. Most people do not know the right way to use a credit card, as a result, the credit score starts declining. It gives a feeling of anxiety when you receive your credit card report and you find your credit score is low. To avoid such situation, it is very important to understand the reasons behind it.
According to William E. Lewis Jr, of Fort Lauderdale, Florida, the more you know about how your credit score works and what can affect it, the easier it will be to get it back up to scratch.
Here are five reasons why your credit score might have declined:
1. You are using a credit card in excess
A little knowledge is a dangerous thing! Indeed. Most people, especially from a non-financial background, does not know how to use a credit card in a useful way. No doubt you must pay your bills on time, but it takes more than that to keep a credit score low. According to experts, it is very essential to minimize negative credit impact, therefore you should use only 30% of your credit allowance. The credit restrictions like this are put in place to protect you. By spending much lower than your credit limit, you will be able to decrease your interest payments and ultimately your debt.
2. You accidentally missed a payment
Keep calm and stop feeling guilty! It happens to everyone, due to the hectic life and responsibilities we often forget one or the other thing. So, accidentally if you missed a payment, trust me it is a no big deal. However, that doesn’t mean you should take it lightly. In such situation, you can call the credit card company or lender to ask them to remove the fee–– especially if you have a good record and you never missed a payment before. And if they approve your request, pay the balance as soon as possible.
For next time it is advisable to set a reminder on your phone in order to avoid such mistakes.
3. You paid off a big loan
So you paid off your big loan – car loan/home loan. Congratulations! But what do you get for it? A reduction in your credit score?
And the reason paying off a loan can affect your credit is because it decreases the diversity of your credit in the eyes of lenders. When the number of credit resources declines, your credit imperfections like going over 30% on your credit utilization, missing a payment or two, gets highlighted.
4. You applied for a loan or a credit card
When you apply for any kind of loan or credit, the financial institution will run what’s called a “hard pull” or “hard inquiry,” which is an official credit check process that requires your approval. This procedure is intended to give lenders an opportunity to assess your reliability as a borrower, and sometimes include a few points off your score as well.
While a few points here and there won’t eventually impact your credit score, however, repeated attempts to secure new means of credit –– like continuously applying for credit cards make lenders think that you’re desperate for credit, which isn’t put a good impression of yours or your credit history on the lenders.
Make sure, next time when you are looking for a credit card, keep in mind your credit score, personal financial history, and payment reliability, so you can select and apply for a card that makes sense for you.
5. A derogatory mark was added to your report
Anyone who has recently gone through a bankruptcy, foreclosure, or even a civil judgment, it is obvious that it will impact the credit. Any unexpected changes to your credit can seriously affect the number that shows on your CIBIL report. Unfortunately, unlike the points listed above, these critical marks are the result of what lenders consider minor crime. Therefore, if it happens in your case, William E. Lewis Jr of Fort Lauderdale, Florida, advice you get professional assistance as soon as possible.
Having a low credit card is always a possibility. Even after making timely payments. If after reviewing the reason for your declining credit score, it may be time to approach professional advice, such as a credit repair company.